The iPhone is still extremely important to the long-term Apple bull thesis. So should investors be worried about the market’s lukewarm initial reaction?
CFRA analyst Angelo Zino summarized the high points of the Apple product event in a new research note. In all, Apple rolled out the iPhone 13, iPhone 13 mini, iPhone 13 Pro Max, Apple Watch Series 7, and an upgraded iPad and iPad mini.
“We believe the biggest takeaways are AAPL’s pricing strategy, which remains unchanged across all product categories, as well as availability of devices on 9/24,” Zino says.
It’s not particularly inspiring to hear that the major takeaways from a tech product launch event are the pricing and the availability date.
Investors can find all the specs of the new devices online. As Zino highlights, there were no major aesthetic changes to any devices. Instead, this generation of Apple devices includes things like longer battery life, faster charging, more storage and improved camera systems.
I doubt there’s anything in that group of features that was mind-blowing to Apple customers. Zino says the new product lineup is good enough to get the job done.
“Given timing release, AAPL appears on pace to exceed Sep-Q and Dec-Q consensus expectations, but we acknowledge a tough bar starting in the Mar-Q,” he says.
CFRA has a “buy” rating and $160 price target for AAPL stock.
Why The Negative Reaction?
Bank of America analyst Wamsi Mohan says the technology in the new products is impressive. But Apple always has impressive technology. That doesn’t necessarily mean AAPL stock is a good investment.
“Product announcements today are incremental, and we view consensus expectations of roughly flat iPhone unit and [average sales prices] for F22 as unlikely to materialize vs. our 241mn/210mn [estimates] for iPhones in F21/F22 despite ongoing carrier incentives,” Mohan says.
To make matters worse, Mohan says waning stimulus benefits will push this generation’s iPhone sales mix down toward the lower end of the price scale. In addition, he says fiscal 2021 iPad revenue of around $30 billion is about 50% higher than Apple’s typical iPad revenue. Mohan speculates that jump may be due to Covid-19 pandemic pull-in of sales that typically would have happened in fiscal 2022. That phenomenon could be very bad news for iPhone comps in the next several quarters.
Finally, Mohan says AAPL stock faces external pressures as well.
“Regulatory issues (Epic Games and Google) could create a headwind to the valuation multiple in the near term as investors recalibrate the risk to Services growth trajectory,” he says.
Bank of America has a “neutral” rating and $160 price target for AAPL stock.
No Easy Money In AAPL Stock
One thing I noticed about the two analyst reactions to the iPhone event were their price targets. CFRA is bullish and Bank of America is on the sidelines. Both analysts have a $160 target. To me, that’s a perfect representation of the lukewarm attitude many analysts and investors have toward AAPL stock and the new iPhone. Even bulls aren’t particularly excited.
AAPL stock isn’t the value play it once was. Its earnings multiple has more than doubled in the past five years to 29.1x. The iPhone 13 isn’t going to move the needle. But it’s likely not going to be a disaster either.
The easy money in AAPL stock was likely made long ago. If you’re looking for a stock that’s going to leave the S&P 500 in the dust, Apple isn’t it. But if you’re looking for a reliable, blue-chip investment that generates mind-boggling cash flow and can serve as a core retirement portfolio holding, AAPL stock is about as good as it gets.
Apple authorized another $90 billion in buybacks earlier this year. The company generated a net profit of $57.4 billion in 2020.
How To Play It
A $160 price target suggests 9.5% upside for AAPL stock over the next year. That type of return is certainly not worth writing home about. Neither is AAPL stock.
If you already own it, the iPhone 13 didn’t change your bull thesis. If you think there are better stocks elsewhere, it probably didn’t change your mind either. I love AAPL stock as a long-term investment. But I’m betting there will be a better buying opportunity sometime in the next year.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.