Apple Gets A Price Target Raise, But Analyst Sees Challenges Ahead

Apple, Inc. AAPL is expected to report earnings July 31. One analyst got more bullish on Apple's stock, but believes its third-quarter guidance may disappoint the market.

The Analyst

BMO Capital Markets analyst Tim Long reiterated his Market Perform rating for Apple, but raised his price target for the stock from $171 to $184.

The Thesis

According to Long, there are a number of trends working against Apple at the moment, but the biggest reason to expect Apple's stock to march higher in the near-term is the company’s massive share buyback program.

Long expects Apple to report second-quarter EPS of $2.17 on revenue of $51.8 billion. Both numbers would slightly miss consensus analyst estimates of $2.16 and $52.3 billion, respectively.

Looking ahead to the third quarter, Long’s estimates $2.44 in EPS and $55.9 billion in revenue are well below consensus targets of $2.64 and $59.5 billion.

Long sees a lengthening iPhone replacement cycle as well. Replacement rates troughed at 2.2 years after the iPhone 6 launch, but Long says they have expanded to 2.5 years and and could expand further if upcoming devices aren’t particularly compelling.

Long also said Apple is losing market share in China but will likely continue to grow revenue overall in the region.

“Although we believe upgrades off a growing installed base will help drive further unit growth, we believe the stock will be in the trading range for at least the remainder of the current product cycle,” Long wrote.

Long raised his price target on the belief that Apple’s share buyback program will trigger earning multiple expansion for Apple stock, which has historically traded at a 20 percent discount to the S&P 500 over the past five years.