Bank of America initiates coverage of Apple with Buy rating

Posted:
in General Discussion edited January 2014
Voicing its belief that investors are placing too much focus on near term iPhone unit sales and not enough on the company's game-changing business model, Bank of America Securities on Wednesday reinitiated coverage of the consumer electronics maker with a Buy rating.



"While we recognize we are late to the Apple party, we believe there is a significant amount of upside possible in Apple stock for a number of reasons," lead analyst Scott Craig wrote in note to clients.



First, he said, Apple is experiencing significant unit growth in its Mac business and new models in the second half of 2007 (as well as the Leopard) should help drive solid year-over-year growth in the near term.



Secondly, the analyst said, unit growth for iPods remains strong, despite concerns that the iPhone would cannibalize demand. And of course, he added, "what would an Apple conversation be without the iPhone?"



"In our opinion, investors are too focused on the near term unit sales for the iPhone over an extremely short period of time (30 hours in 2Q07)," Craig told clients. "Longer term, Apple’s agreement with AT&T is a game changer, in our view."



Ignoring subscription accounting, the analyst estimates that Apple's current operating margins on the iPhone are near 60 percent, including 2 years of monthly payments from AT&T at $6/month.



"In other words," he explained, "Apple is basically capitalizing on annuity payments, so to speak, similar to companies like Qualcomm (receives IP-related royalties from handset OEMs for every sale of a handset) and Research in Motion (receives monthly payment from carriers for every customer that activates data services using a Blackberry device)."



Based on his estimates of 3.2 million iPhone sales in 2007 and 9+ million in 2008, Craig said the handset could account for 25 percent or more of Apple’s revenues by the end of fiscal 2009 under a non-subscription-based accounting view.



"Valuing Apple has become increasingly challenging over the past few months, as the company announced it will be using subscription-based accounting for iPhone hardware, given it plans periodic software updates to the device," the analyst explained. "As a result, we believe that you have to value Apple using either (or both) adjusted 'cash' earnings-per-share (removing subscription accounting and accounting for iPhone revenue/gross profit as if realized in the quarter they sell the phone) or cash flow."



Craig's initial per-share earnings estimates for Apple's fiscal 2007, 2008, and 2009 are $3.75, $4.35, and $5.57, respectively, compared to consensus of $3.72, $4.37, and $5.39. However, when converting the subscription accounting revenues and profits to current period accounting, his adjusted cash per-share earnings estimates come out to $3.94, $5.10, and $6.70, respectively.



The Bank of America analyst issued a $160 price target on shares of Apple alongside his Buy rating Wednesday.

Comments

  • Reply 1 of 11
    SpamSandwichSpamSandwich Posts: 31,185member
    This certainly can't hurt.
  • Reply 2 of 11
    msnlymsnly Posts: 378member
    Aapl +1.03
  • Reply 3 of 11
    wallywally Posts: 211member
    Quote:
    Originally Posted by AppleInsider View Post


    "While we recognize we are late to the Apple party, we believe there is a significant amount of upside possible in Apple stock for a number of reasons,"



    In other words: "We bought a whole sh*tload of AAPL and we need to bump the price up so we can sell it off and get out of this volatile tech stuff"



    Kidding. But we need more "analysis" from respectable firms and not thestreet, theregister & SF papers...
  • Reply 4 of 11
    eaieai Posts: 417member
    Well that seems more rational than a lot of the stuff analysts say. I think the big investors are way too jumpy with Apple - they're only going up in the long term.
  • Reply 5 of 11
    macsharkmacshark Posts: 229member
    Quote:
    Originally Posted by Wally View Post


    Kidding. But we need more "analysis" from respectable firms and not thestreet, theregister & SF papers...



    If Bank of America Securities is a "respectable" firm, I am Steve Jobs!



  • Reply 6 of 11
    SpamSandwichSpamSandwich Posts: 31,185member
    Quote:
    Originally Posted by macshark View Post


    If Bank of America Securities is a "respectable" firm, I am Steve Jobs!







    Heh. Bank of America is one of the lending institutions that is in bad, bad shape due to the housing collapse. Just read about it yesterday on Wall Street Journal...
  • Reply 7 of 11
    wallywally Posts: 211member
    Quote:
    Originally Posted by macshark View Post


    If Bank of America Securities is a "respectable" firm, I am Steve Jobs!







    oh. Got it.
  • Reply 8 of 11
    dmwogandmwogan Posts: 36member
    Amazing to see a level headed analysis on Apple's stock. Everyone lately has been going crazy on iPhone activations and unit sales, dumping stocks. Refreshing to see.
  • Reply 9 of 11
    drjjonesdrjjones Posts: 162member
    The past products will keep AAPL from falling ,but the unknown future products will drive up margins and revenue. Apple has already swung at the ball and it's going going gone,,,it's outta here....waiting for Christmas to sell some and write off 2000- and 2001 losses i sold some dogs 2 years ago and haven't written them off yet ,,,...nice tax free money ...,,about $150,000 so far and climbing ..
  • Reply 10 of 11
    macgregormacgregor Posts: 1,434member
    Quote:
    Originally Posted by SpamSandwich View Post


    Heh. Bank of America is one of the lending institutions that is in bad, bad shape due to the housing collapse. Just read about it yesterday on Wall Street Journal...



    How long before the Journal is reduced to describing Survivor episodes and having an O'Reilly column.
  • Reply 11 of 11
    nvidia2008nvidia2008 Posts: 9,262member
    Quote:
    Originally Posted by Wally View Post


    In other words: "We bought a whole sh*tload of AAPL and we need to bump the price up so we can sell it off and get out of this volatile tech stuff"

    <snip>....more "analysis" from respectable firms and not thestreet, theregister & SF papers...



    Bingo. What respectable firms? There are none.
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