Cowen analyst Krish Sankar initiated coverage of Apple (AAPL) with an Outperform rating, saying he views the company's Services business as an "investable" long-term theme as earnings per share contributions could "double to $6" by 2021 and increasing recurring revenues should drive a higher multiple. Meanwhile, his peer at Morgan Stanley told investors that iPhone installed based data shows market share recovering after price cuts in early 2019.
BUY APPLE: In a research note to investors, Cowen's Sankar started coverage of Apple with an Outperform rating and a $220 price target. The analyst pointed out that he views the Services business as an "investable" long-term theme as earnings per shares contributions can "double to $6" by 2021, and increasing recurring revenues should drive a higher multiple. Further, annual iPhone sales approaching replacement demand levels, product launch catalysts, and capital returns support also help underpin a positive view, he contended. Overall, Sanker noted that his long-term investment thesis hinges on the Services segment growing and Apple massively monetizing its installed base of products and charging for value added options down the road. The analyst models iPhone units down 15% year over year in 2019 to 175M units. But a first half of the year run-rate of 75M units implies an improved second half of 2019 trajectory and therefore the stock could be a good buy from a short-term trading standpoint as well, he argued.
SIGNS OF IPHONE STABILIZING IN CHINA: After losing share in the fourth quarter, iPhone installed base data shows market share recovering following price cuts in early 2019, Morgan Stanley analyst Katy Huberty told investors in a research note of her own. Combined with stabilizing iPhone supply chain data points, the analyst now sees an upward bias to her iPhone estimates in the March quarter. Noting that she is "positively biased" on Apple's March quarter, Huberty said that despite a Chinese smartphone market that remains weak, Apple gained share of the Chinese smartphone installed base year over year in January and February after losing share in the December quarter. Additionally, the analyst highlighted that February was the first month in half a year that her firm's Asia team did not revise iPhone builds lower, implying the most significant supply chain cuts are likely behind the company. This is also the first time that her March quarter iPhone forecast is below her firm's Asia Hardware team's build forecast, suggesting near-term estimates may have overshot on the downside, she contended. Lastly, Huberty pointed out that based on her 180M 2019 iPhone shipment forecast, replacement cycles have converged with PCs after which she would expect stabilization. She reiterated an Overweight rating and $197 price target on Apple's shares.
PRICE ACTION: In morning trading, shares of Apple have gained about 1% to $183.03.