Friday, October 02, 2009

Apple (NASDAQ:AAPL): Upgraded to Buy at UBS; $265 price target - New Street high

UBS is upgrading Apple (NASDAQ:AAPL) to Buy from Neutral from a $265 price target (prev. $170):

Firm notes their positive view is predicated upon expectations for greater "recurring" iPhone hardware revenue (due to a growing installed base & stickiness of the App Store) which should drive more visibility into iPhone sales (20%+ of our FY10 iPhone shipments), as well as continued iPhone expansion driven by new partnerships (end of exclusivities). They also believe upward revisions to consensus ests are likely given underestimated gross margin potential.

Apple service could be the next long term driver
UBS believes AAPL may be working on building out a foundation for a service to provide seamless access & mobility of digital content across all its products. They envision a service that seamlessly allows access to media-focused content of iTunes & user-generated content of MobileMe (pictures/videos/email/calendar) as well as social networking integration from any existing Apple product. Firm believes the service may be the draw (halo) that drive additional future Apple product sales.

Capex hints at build of a potential enhanced service, which UBS thinks could help drive further hardware sales. Capex related to infrastructure & corporate facilities has been ramping, reaching $702 million in FY08 and rising to an estimated $840 million in FY09 from $128 million in FY05. They believe a material portion of this capex may be related to the build out of a data center/network operating center (NOC) which they hypothesize will be the foundation for a service that provides seamless access and mobility of digital content across all its products, at any time, and from any place. Similar to Research In Motion’s, the NOC may also help to reduce network congestion through techniques such as compression & push. UBS envisions a service that will seamlessly allow access to the media-focused content of iTunes (music/video) and user-generated content of MobileMe (pictures/videos/email/calendar) as well as integration with social networking sites from any existing Apple product. They believe the service, in the future, may be the draw to purchase additional Apple products.

New products still on the way
From a new product perspective, one thing is certain, in UBS' opinion – Apple will continue to introduce new products across its product portfolio every year. Determining what those new products will be is a part of the buzz (and fun). Apple’s veil of secrecy will likely continue to create that important buzz and they believe the company’s attention to detail and customer experience will help to perpetuate and maintain its buzz/brand image (the “halo effect”). However, the key question is whether that pace of innovation can continue? From a near/medium term perspective, firm believes a potential data-only product at Verizon (potentially a smart book), new wireless operators and a tablet may be forthcoming. With iPods recently getting a complete refresh and the company making adjustments to its MacBook line, the firm believes Apple could focus on a desktop refresh next.

Raising estimates on back of higher iPhone expectations
Although they are leaving their Sept. qtr iPhone units unchanged, UBS has increased their FY10 estimate to 36mm units from 25.9mm previously. As a result their pro forma rev/pro forma EPS for FY10 increases to $51.6b/$11.08.

Notablecalls: The $265 target is the new Street High, even surpassing Piper Jaffray's $255.

Should generate buy interest.

PS: Note that Morgan Stanley is also out positive on AAPL this morning saying they view broader iPhone distribution as the most significant near-term catalyst for iPhone units, EPS, and share price. This opportunity is substantial – it equates to a potential 20.3M unit and $3.76 adj. EPS opportunity or 100%/41% of the LTM units/EPS. Timing remains uncertain but they believe a near term (2010) opportunity exists in Europe, China & Korea with a longer-term (2011) opportunity in the US.

Morgan Stanley raises their CY10 revenue and adjusted EPS estimates to $45.3B/$10.50 from $38.2B/$10.00 as theynow expect 41.7M iPhone shipments in CY10 up from 38.2M previously. Firm's CY10 EPS forecast is 13% above consensus. Overweight is maintained with $210 tgt (prev. $200).


bl said...

83 WL. 14 upgrades: best=DIOD AAPL WYNN FSLR BBT USB ENDO. Best premkt ONCY, best eod=ONCY.The upgrades had better charts than the initiated. 8 downgrades and most reversed. Do you play the downgrades? Reversal open:play the insurers: HIG GNW AIG

bl said...

...and btw, nice options on wynn appl fslr

bl said...

SFSF also a nice upgrade premkt chart=15 throw out ACN as European. Mostly from, free site.