Apple (AAPL) is still an innovator and its massive user base, ripe to tap into for services revenue, is a key for analysts touting the longer term opportunity the stock offers.
Shares of the smartphone and services giant have been seesawing heading into its earnings release post-market, suggesting apprehension as investors seek to discern whether the stock truly bottomed after Tim Cook's investor letter earlier this month.
Yet, many analysts are urging investors to ignore the short term noise and look to the company's efforts to monetize its massive user base through services, wearables, and auxiliary efforts.
"Apple has the world's most valuable technology platform with over 1.4 billion active devices, and is well positioned to capture more of its users' time in areas such as video, augmented reality, health, autos and home," Morgan Stanley analyst Katy Huberty argued ahead of the earnings release. "Accelerated Services growth, margin expansion, and cash return to shareholders are catalysts that can help sustainably re-rate shares."
Health in particular has been a major driver for Apple, as CEO Tim Cook has touted it as what he foresees as Apple's lasting legacy.
Huberty set an "Overweight" rating for the stock, with a $211 price target on the back of this thesis.
"We believe the recent pullback is an attractive entry point given upcoming Services launches and shares already pricing in extremely cautious iPhone replacement cycle and ASP headwinds," Huberty concluded.
In her view, the laser focus on smartphones is shortsighted when contrasted with the numerous industries the company is eyeing.
J.P. Morgan analyst Samik Chatterjee broke down the necessary parts building toward Apple's sum business piece by piece, touting an even more bullish thesis as growing businesses like services and wearables look set to flourish in the long term.
"Our December 2019 price target of $228 is predicated on a 16.6x blended P/E multiple, which implies a re-rating from next twelve months trading multiple of 13.5x," he explained. "Our blended P/E is arrived at based on a sum of the parts methodology using 11.0x P/E for iPhones, Mac and iPad devices, 25.0x for Services and Apple Watch, and 16.0x for Other Products."
Much like Huberty, Chatterjee chided the myopic view of investors on short term risks related to China and smartphone slowdowns. The services, device, and other products revenues offer a markedly higher valuation.
That is not to mention the over $100 billion in cash that could help the company handle most difficulties up ahead.
To be sure, the autonomous driving initiative touted by Huberty has had a somewhat inauspicious start to 2019.
Last Friday the tech leader cut over 200 employees from its "Project Titan" autonomous driving initiative, according to CNBC.
That adds to skepticism about the program and and the company's prospects, as it has not tested cars with the California Department of Motor Vehicles alongside self-driving car competitors Tesla (TSLA) , Ford (F) , Baidu (BIDU) , Alphabet (GOOGL) , and Nvidia (NVDA) , among others.
The timeline for the release of cars has been pushed back as well. As the 2020 deadline looms, the company now expects cars not to hit roads until 2023. That timeline could be further extended if history is to be an adequate teacher, leaving the long term investor waiting even longer for that catalyst.
Still, for those looking beyond the earnings release this evening, Apple could be a strong stock to invest in and hold it for the long term.
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