Re: Meeting Confirmation
I believe you still own? Let me know if you'd like to discuss further.
Global research
Apple Inc.
Attractive in volatile markets, cash cushion like none other
Reiterate Rating: BUY PO: 220.00 USD I Price: 159.54 USD
Equity | 08 February 2018
Key takeaways
• Apple is a defensive stock to own given derisked expectations, a strong cash position and incremental capital return
Shares are currently discounting declining growth in hardware scenario and a worse than run rate trajectory for Services rev
Our DCF based upside/downside scenarios are $232/$141 which represents growth/decline of 42%/13%.
FULL REPORT
A name to own in volatile market conditions
In times of market turmoil, we turn to large cap stocks with low leverage, high cash balance, and attractive valuation. Apple offers all this as well as opportunities for future growth. Apple's large cash balance offers the opportunity to expand into new markets (Fig 1). Capital return program remains strong (Fig 2) and we expect the company to announce a new authorization in the April timeframe (could be higher than the typical annual $30-50bn given cash repatriation), and we already model a 10% dividend increase in 2018. While iPhone X sales may be lower than the Street had predicted (our estimates were lower) we view low single digit unit growth and mix adjusted ASP (average selling price) growth into 2019, with upside to gross margins. In addition, services remain a key growth driver in future years. Reiterate buy.
Balance Sheet and FCF remains strong
Apple's balance sheet remains strong with -$32/sh in net cash and investments at the end of F1Q18. We expect continued strong free cash flow (FCF) of about $50-60bn, per year, over the next two years despite higher capex announced plans to spend $30bn in capex in the US over the next five years. Total capex in F18 expected to be $16bn).
Buybacks continue, capital return program strong
So far, Apple has completed over $248bn of its $300bn capital return program, including $176bn in share repurchases against its $210bn buyback program. We estimate approximately $34bn remains under Apple's current authorization.
Valuation even more attractive after recent pullback
AAPL shares are down —5% YTD and —10% from N/T peak of $179. Our detailed note on Apple services revenue showed that shares are currently discounting a "declining growth in hardware" scenario and a worse than run rate trajectory for Services revenues, which is to us too pessimistic. Our DCF analysis leads us to Bull/Bear case scenarios of $230/$141(Fig 3) for Apple shares. Next catalysts for the stock would be announcement of new buyback authorization (April) and earnings and WWDC in the summer of 2018.
- Wamsi Mohan, Research Analyst, MLPF&S
- Report Intended for [Redacted]
- Email: [Redacted]
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Publication: 62651343-11839542.pdf
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Richard Kahn
HBRK Associates Inc.
575 Lexington Avenue, 4th Floor
New York, NY 10022
Begin forwarded message:
From: "Ens, Amanda"
Subject: AAPL US: Apple Inc. - Attractive in volatile markets, cash cushion like none other - BUY
Date: February 8, 2018 at 7:28:50 AM EST
To: "rkahn"
Reply-To: "Ens, Amanda"
I believe you still own? Let me know if you'd like to discuss further.
Global research
Apple Inc.
Attractive in volatile markets, cash cushion like none other
Reiterate Rating: BUY PO: 220.00 USD I Price: 159.54 USD
Equity | 08 February 2018
Key takeaways
• Apple is a defensive stock to own given derisked expectations, a strong cash position and incremental capital return
Shares are currently discounting declining growth in hardware scenario and a worse than run rate trajectory for Services rev
Our DCF based upside/downside scenarios are $232/$141 which represents growth/decline of 42%/13%.
FULL REPORT
A name to own in volatile market conditions
In times of market turmoil, we turn to large cap stocks with low leverage, high cash balance, and attractive valuation. Apple offers all this as well as opportunities for future growth. Apple's large cash balance offers the opportunity to expand into new markets (Fig 1). Capital return program remains strong (Fig 2) and we expect the company to announce a new authorization in the April timeframe (could be higher than the typical annual $30-50bn given cash repatriation), and we already model a 10% dividend increase in 2018. While iPhone X sales may be lower than the Street had predicted (our estimates were lower) we view low single digit unit growth and mix adjusted ASP (average selling price) growth into 2019, with upside to gross margins. In addition, services remain a key growth driver in future years. Reiterate buy.
Balance Sheet and FCF remains strong
Apple's balance sheet remains strong with -$32/sh in net cash and investments at the end of F1Q18. We expect continued strong free cash flow (FCF) of about $50-60bn, per year, over the next two years despite higher capex announced plans to spend $30bn in capex in the US over the next five years. Total capex in F18 expected to be $16bn).
Buybacks continue, capital return program strong
So far, Apple has completed over $248bn of its $300bn capital return program, including $176bn in share repurchases against its $210bn buyback program. We estimate approximately $34bn remains under Apple's current authorization.
Valuation even more attractive after recent pullback
AAPL shares are down —5% YTD and —10% from N/T peak of $179. Our detailed note on Apple services revenue showed that shares are currently discounting a "declining growth in hardware" scenario and a worse than run rate trajectory for Services revenues, which is to us too pessimistic. Our DCF analysis leads us to Bull/Bear case scenarios of $230/$141(Fig 3) for Apple shares. Next catalysts for the stock would be announcement of new buyback authorization (April) and earnings and WWDC in the summer of 2018.
- Wamsi Mohan, Research Analyst, MLPF&S
- Report Intended for [Redacted]
- Email: [Redacted]
Click here to access the Research Library
Read the research report, available through the link above, for complete information including important disclosures and analyst certification(s).
The research report and the link to such report are for the use of Bank of America Merrill Lynch customers only and all copying, redistribution, retransmission, publication, and any other dissemination or use of the contents thereof are prohibited. There may be more recent information available. Please visit one of the electronic venues that carry BofA Merrill Lynch Global research reports or contact your Bank of America Merrill Lynch representative for further information. "Bank of America Merrill Lynch" is the marketing name for the global banking and global markets businesses of Bank of America Corporation.
Click here to stop or modify the delivery of Research via Emails.
Publication: 62651343-11839542.pdf
Recipient:
http://rsch.baml.com/r?q=0W9oMugd5imuUk5uB!L5cQ&e=rkahn=40hbrkassociates.com&h=qPr3uQ
This message, and any attachments, is for the intended recipient(s) only, may contain information that is privileged, confidential and/or proprietary and subject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. If you are not the intended recipient, please delete this message.
Hi Jane,
Just confirming our meeting scheduled for tomorrow at 3 PM.
Best,
John
Hi John,
Thanks for the confirmation. See you then!
Best,
Jane