Apple Receives Outperform Rating & $295 Target, But Can Company Sustain Momentum?

Nov 13
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Cupertino tech giant Apple is struggling to maintain iPhone momentum twelve years after it debuted the iconic smartphone in 2007. Apple's iPhone revenues dropped by 14% in the company's last fiscal year as it earned $142 billion from selling smartphones in 2019. This is down from the $165 billion the smartphone brought in a year back. Apple's stated reason for the decline is simply worded, as the company admits that declining unit sales have led to lesser revenues of late.

However, it's slightly early to completely rule out the iPhone. While design upgrades on the lineup have once again slowed, the upcoming 5G 'boom' will mean that users will be eager to buy an iPhone with the advanced cellular connectivity. On that note, we've got an investor note from RBC (no pun intended) today that's optimistic about Apple's future. Take a look below for more details.

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Apple Expected To 'Outperform' Indices Believes RBC As Firm Sets $295 Price Target For Cupertino Tech Giant's Stock

In a research note released to investors today, RBC Capital analyst Robert Mueller shared the firm's thoughts on Apple's future. Mueller rates Apple stock at 'Outperform' and his firm has set a price target of $295/share for the company. While Apple's iPhone unit sales have declined this year, they still stand at a sizeable $142 billion - larger than what entire companies make on their own.

Based on these figures, RBC believes that Apple's base iPhone business continues to generate significant cash for the company. However, what the firm fails to consider here is the fact that Apple isn't doing well in China - a fact that will become more important as we take a look at another facet of optimism present in today's investor note.

Mueller believes that 5G growth will let Apple (NASDAQ:AAPL) reverse its iPhone revenue decline. While this will likely be true for iPhones sold in North America, whether Apple manages to effectively target the 5G market in Europe, and particularly in China can not be stated with certainty. For Europe, the company's fortunes will depend on the timing of 5G rollout in the continent, and for China, a thaw in trade-war tensions between the US and the East Asian country will help the company.

$100 worth of Apple stock bought in 2014 was worth $219 on September 28th this year.

RBC Capital Believes Services Expenditure & Tariffs Will Continue To Worry Investors As Company's Stock Reaches New Highs

Mr. Mueller concludes his note by stating that Apple's push into services and potential tariffs imposed on the company's goods will continue to worry its investors in the future. Apple's Services revenue grew by 16% in the company's last fiscal year, but the company continues to invest heavily in the segment through measures such as providing free Apple TV+ subscriptions. The growth in Services revenues was fuelled by Apple Care and App Stores sales. Services gross margins (the amount Apple (NASDAQ:AAPL) makes after subtracting costs) also grew this year to 63.7%.

RBC's note comes at a time when it's clear that Apple needs to start selling products and innovating sectors to boost its share price instead of simply buying back shares. The company's stock has a history of gaining momentum and reaching a peak value before reversing the trend over the next couple of months. For instance, the share price jumped to $229 in October 2018 before the stock fell to $140 in January this year. Then it jumped to $210 in May before falling down to $172 in June. At the time of writing, Apple's shares are trading at $262.94, up by 0.43% over yesterday's closing.

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Source: Koyfin

Apple's stock is once again gaining momentum, but the question remains. Will the company be able to maintain this growth as we head into the calendar year 2020? It's missed the 5G wave in China, as the next-generation cellular connectivity is already official in the country, and Apple has not targetted it through a 5G iPhone. Mac revenues remained static in Apple's fiscal year 2019, and the cumulative $16 billion revenue growth in iPad, Wearables and Services falls short of the $23 billion iPhone revenue drop.

Apple's invested $6 billion in producing original content for Apple TV+ and unless the streaming service witnesses a drastic boom in subscriptions, it's likely to be a burden on the company's bottom line. Right now, only one product lineup, in our opinion, might help Apple make up for the iPhone's fall. While services is the company's second-largest revenue contributor, Apple has been unable to do much with the Mac recently. And if the company plays its card right, then the Mac could help it navigate heavy seas.

To that end, the company has launched a new MacBook Pro today, but it's unlikely that the new notebook will make a dent in Mac revenues. Given that the majority of Apple's Macs are pricy, buyers often wait for a year or so before upgrading. So unless Apple (NASDAQ:AAPL) launches a groundbreaking notebook that offers features unheard of, the Mac isn't going to help the company either.

So what will? While 5G on the iPhone 12 will help the Cupertino tech giant, it's a foregone conclusion that Apple needs to move forward from the iPhone. At that end, perhaps AR glasses will help. One thing is clear though: Apple needs to stop relying on share buybacks to push stock price.

Thoughts? Let us know what you think in the comments section below and stay tuned. We'll keep you updated on the latest.

Disclaimer: This piece does not constitute investment advice and the author does not have a stake in Apple. He doesn't plan to acquire one in the next 72 hours either.

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