BofA On 5 Upcoming Apple Catalysts: 'Time To Pay Attention To The Fundamentals'

BofA Securities named five upcoming catalysts for Apple Inc. AAPL in a new report. 

The Apple Analyst: Bank of America analyst Wamsi Mohan maintains a Neutral rating on Apple with a $140 price target. 

The Apple Takeaways: “Given the recent reversal in momentum for the stock, it is once more a time to pay attention to the fundamentals,” Mohan said in a note.  

The analyst named five major catalysts that will affect Apple's valuation going forward: Apple's Sept. 15 event, friction between the U.S. and China, possible restrictions on Huawei, further clarification of Trump's executive orders and scrutiny over App Store issues coming from the battle with Epic Games.

“We note that this year AAPL shares have shown a materially larger positive performance Ytd compared to prior years heading into the event,” he said. 

A look at price-to-earnings multiples shows that Apple is trading at 35.9x going into the Sept. 15 event versus 38x in both 2019 and 2018, Mohan said. 

Restrictions on Huawei could help market share, the analyst said, adding that Huawei devices are primarily in the $300 to $499 price range.

Apple has a larger market share at higher price points.

It's a tough environment in which to drive pricing higher, he said.

“We view bias to the downside for ASP/Margin trends for the iPhone.” 

BofA is Neutral on Apple, as it sees the risk-reward as balanced, Mohan said. 

The positives that remain in place for Apple are: the product cycle being less material, a loyal user base, a growing installed user base, low service penetration and strong free cash flow.

The analyst named the following as negatives for Apple: its higher valuation, the potential for risk to margins and growth, a muted impact from buybacks and the growth in recent results coming less from secular parts of the portfolio and more from cyclical ones. 

Mohan’s price target of $140 is based on 33x fiscal 2020 estimated EPS of $4.27. The company’s historical range is 10x to 36x.

“We believe a multiple at the higher end of the historical range is justified given a cash balance and opportunity to diversify into new end markets, increasing mix and diversity of services,” the analyst said.

AAPL Price Action: Apple shares were trading down 2.67% to $114.19 at last check Thursday. The stock is up 60% in 2020.

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Photo by Daniel Lu via Wikimedia.