Apple shares – The show must go on!

About the Company

Apple is an American multinational technology company headquartered in Cupertino, California that designs, develops, and sells consumer electronics, computer software, and online services. The company's hardware products include the iPhone smartphone, the iPad tablet computer, the Mac personal computer, the iPod portable media player, the Apple smartwatch, and the Apple TV digital media player. Apple's consumer software includes the macOS and iOS operating systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity suites. Its online services include the iTunes Store, the iOS App Store and Mac App Store, Apple Music, and iCloud.

Investment Rationale

Given the increased expectations of the new iPhone, we revised our forecasts on Apple and increased our price target from $140 to $166. The increase in price target is mainly a result of an increase in the forward P/E multiple used to value to stocks. We increased the forward P/E from 15x to 17x.

We are confident that the launch of the new iPhone will boost sales for the year. Apple Watch sales nearly doubled year-on year, while the new Airpods saw demand significantly exceeding supply.

We are also confident that margins will be maintained. Add to all of this the additional $35B added to the buyback authorization and 10% dividend increase.

Bottom line – We think Apple is well positioned to continue to benefit from global GDP growth.

Iphone 8

The iPhone continues to dominate Apple’s top line because it represents more than 60% of the Group’s sales.

After the Company reported revenue and earnings for Q217 which were in line with our expectations, the shares initially fell following the downbeat guidance given by management for Q317. But the shares quickly recovered after that.

But the reason for this downbeat guidance for the current quarter was mainly due to a slowdown in iPhone sales as consumers wait for the new phones to be launched. Contrary to previous years, Apple is expected to launch its new iPhone in June of this year. This resulted in a rally in Apple shares.

Apple confirmed its keynote address for its upcoming Worldwide Developers Conference by sending press invitations. Apple will hold the keynote event on 5th June.

Concerns

Slower smartphone sales, market share losses, and continued declines in Macs or iPad.

Conclusion

Given that our numbers remain in line with consensus forecasts we advise investors to continue to pick up Apple stock before the new iPhone is launched in early June.