Mizuho’s
Abhey Lamba cut his estimates to be in-line with recent analyst changes
Abhey Lamba decreased his fiscal 2016 EPS estimate from $9.78 to $9.45 vs. $9.66, Yahoo! Finances average sell-side analyst projection. However there were at least 8 analysts who cut their projections last month along with RBC and UBS last Thursday and five more last Friday. However when I reviewed the sell-side models I have received over the past month they believe Apple will generate $9.32 in EPS.
The probable reason the number on Yahoo is higher than the projections I have is due to a number of sell-side analysts who have not officially changed their forecast. They could be waiting for Apple’s earnings announcement and guidance on Tuesday, January 26, but I suspect if they have written a preview note they are indicating Apple will report numbers below their published numbers.
However, I feel comfortable that a large majority of buy-side analysts who only have to publish their estimates within their firms have decreased their projections to be more in-line with the numbers I have. Lamba also decreased his fiscal 2017 EPS estimate from $11.45 to $10.20 and this compares to Yahoo’s $10.58 and $10.30 for the sell-side models I have seen.
Core franchise could be worth $120-130/share
Lamba believe it is prudent to look past the quarterly data points and assess Apple's real value. He estimates that the lifetime value of an iPhone customer is about $1,200 and that the company can keep expanding its base. His survey of 1000+ consumers indicates that Apple's eco-system remains alive and healthy, which could help the stock move closer to its fair value of $120-130 based on conservative customer spending estimates. BMO Capital and Stifel have also published reports that detail how Apple’s iPhone install base could grow through 2019 and 2021, respectively, and help Apple grow its business and generate cash.
As can be seen in the chart below Mizuho’s survey shows the loyalty Apple’s customers have to Apple’s iPhone with a 90% retention rate. Google’s Android retention rate is at 74% with 14% of its users planning to purchase an iPhone. The Other Smartphone vendors have the lowest retention rate and that 18% of its user plan to purchase an iPhone.
Upgraded to Buy
While Lamba believes Apple’s shares could fall to $90 based on a 5x multiple on Enterprise Value to Free Cash Flow (EV/FCF) he thinks the multiple could move higher in the second half of calendar 2016.
His $120 price target is based on a combination of an 8x EV/FCF multiple on his 2016 estimate, a 10x multiple on Enterprise Value to operating earnings and a Discounted Cash Flow analysis.
Overall he believes investors are too caught up in short-term data points and not looking at its strong business and ecosystem.
