Apple Inc. (NASDAQ:AAPL) is moving dangerously close to losing its position as a Wall Street darling, but it isn’t there yet. There are still plenty of perma-bulls casting their net widely for potential catalysts for Apple stock that don’t have the word “iPhone” in them. The Services business continues to be a headliner, but now, bulls have another reason to grateful for the shelter they feel Apple stock could provide at times like this.
Bank of America Merrill Lynch analyst Wamsi Mohan said in a note on Thursday that Apple stock is “a name to own in volatile market conditions.” He explained that at times of extreme volatility, he prefers “large cap stocks with low leverage, high cash balance, and attractive valuation,” and he believes that the iPhone maker offers not only all of these features, but future growth opportunities as well.
He noted that Apple’s balance sheet is still strong, with about $32 per share in net cash and investments, as is its capital return program. He expects an announcement about additional capital return authorization sometime around April, and he believes it might be higher than the usual $30 billion to $50 billion that’s authorized annually. At this point, the company has carried out more than $248 billion of its $300 billion capital return plan.
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Apple stock has continued to slide year to date, and Mohan feels that it is now “even more attractive” following the post-earnings pullback. He also mentioned the company’s services business again and estimates that Apple stock is discounting the “declining growth in hardware” scenario. He also feels that the stock is assuming a “worse than run rate trajectory” for services revenues, which he describes as “too pessimistic.” He set his bull case for Apple stock at $232 and his bear case at $141 and maintains his Buy rating and $220 price objective.
Barclays analyst Mark Moskowitz focused on Apple’s services business in his own note. He noted that the company is trying to double its services revenue, which implies a run rate of about $50 billion by 2020. He feels that the Apple stock multiple could improve if the company becomes less dependent on hardware. He also emphasized that growth in average revenue per user is essential.
He expects the growth in the company’s installed base to decelerate to 3% in the next four to five years, which implies that a 12% compound annual growth rate is needed from the current $3.90 per month. This would bring the average revenue per user for Apple’s services business to about $5.50 per month by 2020, which he said is needed in order for the company to reach its target of $50 billion in services revenue. Even though he does see this as attainable, he feels the company will need to “invest more aggressively” in order to boost its monthly annual revenue per user even more.
Moskowitz also offered some suggestions for how the company could grow the revenue in its services business. For example, he suggested his own invention he calls “iCloud for Enterprise,” which he envisions as including collaboration tools and software-as-a-service. He also suggested that the company invest in its own augmented reality games and start an AR-focused fund to boost investments in the making of such games.
Apple stock plunged by more than 1% to as low as $156.94 in intraday trading on Thursday.