By Malcolm Owen Monday, March 06, 2017, 01:00 pm PT (04:00 pm ET) Sport…
Apple’s services growth, continued smartphone domination key to stock growth
JP Morgan sets a price target of $272 for Apple’s stock, seeing a “considerable upside” for the company based on a leadership position in the smartphone market, and the services that Apple uses to amplify that revenue.
In a note released Thursday, JP Morgan analyst Samik Chatterjee gave up Apple an “overweight” rating and set a December 2019 price target of $272. Apple’s stock closed at $220.42 on Wednesday.
The note is titled Time for Apple Picking: Initiate OW on Compelling Services Transformation, Ripe Installed Base, Core Capital Deployment.
“While Apple’s leadership position in the premium smartphone market is well understood by investors, we still see considerable upside to the stock from current levels,” Chatterjee writes.
Morgan joined other analysts in praising Apple’s transition into a services-based business, rising ASPs for the iPhone, the company’s continued innovation, “underappreciated position for continued robust growth in the installed base,” its recent stock buybacks, and a strong balance sheet, which Morgan sees Apple using for “outsized share repurchases or M&A.”
Chatterjee, like Gene Munster and several other analysts, sees services as key for Apple in the future.
“We believe the transformation to services, led by growth in both installed devices and service revenue per device, is tracking better than investor expectation, including achieving revenue target of $48bn by FY20E ahead of schedule,” the analyst wrote. “The Services opportunity is currently derived primarily from App Store purchases and there are multiple emerging drivers, such as Apple Music and Apple Pay, which should continue to drive strong growth.”
Chatterjee also sees “robust high-single-digit growth” in the company’s install base, which in turn is likely to increase services revenue.
JP Morgan also predicted that Apple will soon offer an “all-encompassing Media subscription,” which will include its video offerings along with newspaper and magazine content, for a price point of around $14.99.