Apple Will Be King Again: DA Davidson Initiates With Buy Rating, $220 Target

Apple Inc. AAPL's status as one of the most "significant" technology companies in the planet remains unchanged despite facing multiple challenges, according to DA Davidson.

The Analyst

DA Davidson's Tom Forte initiated coverage of Apple's stock with a Buy rating and 12-18 month $220 price target and a five-year price target of $300.

The Thesis

Apple's ongoing challenges, including the growing competitive landscape across all of its product lines, is overshadowed by its high margin and "large sales figures," Forte said in the April 30 note. Specifically, Apple's significant free cash flow gives the company the ability to increasingly return capital to shareholders while simultaneously being able to make strategic acquisitions as needed to "bolster its competitive standing."

The iPhone maker is expected to generate a mid-to-high single digit sales growth and margin expansion over the coming three year period, the analyst wrote. This should enable the company to boost its revenue at a 7.5 percent compounded annual growth rate and achieve a 31.7 percent EBITDA margin in fiscal 2020, which marks an increase from 29.1 percent in fiscal 2017.

Apple also has upside from its exposure to "SIMPL," an acronym to group together the future of retail which includes Social, International, Mobile, Payments, and Logistics, Forte said. Specifically, all of these represent "important areas" and "relevant to Apple."

Price Action

Shares of Apple were trading higher by 0.8 percent at $166.69 early Tuesday morning.

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