Apple's stock rises again after Goldman says to buy, citing nearly 30% upside potential
By Tomi Kilgore
Goldman Sachs analyst Michael Ng starts coverage of Apple with buy rating and $199 stock price target
Shares of Apple Inc. surged toward a third straight gain Monday after Goldman Sachs analyst Michael Ng urged investors to buy, as a growing installed base of users, which encourages repeat purchases, provides opportunity for nearly 30% upside.
In addition to the growth in the iPhone maker's installed base, Ng believes growth in services and new-product innovation should more than offset headwinds to product revenue, which include longer replacement cycles and slowing industry growth of personal computers and tablets.
And Ng said the market's valuation of technology giant's (AAPL) stock makes it "attractive" relative to its history and to certain other large-capitalization technology and consumer peers.
"Apple's success in premier hardware design and resulting brand loyalty has led to a growing installed base of users that provide visibility into revenue growth by reducing customer churn, lowering customer acquisition costs for new product and services launches, and encouraging repeat purchases," Ng wrote in a note to clients.
Ng started coverage of Apple with a buy rating and a $199 stock-price target, which implies about 29% upside from current levels.
The stock climbed 1.9% to $153.83 on Monday, the highest close since Feb. 15. It has rallied 5.9% amid a three-day win streak that started when the stock closed March 1 at a one-month low.
Ng said he believes the majority of gross-profit growth over the next five years will be driven by Apple's services business, which he said should mark "an inflection point" in the services-investment narrative and support a premium valuation for the stock.
He expects the largest contributors of growth in services in the coming years to be the App Store; subscription services in the aggregate; search-engine distribution rights, or traffic acquisition costs (TAC) revenue; One Premier advertising; and AppleCare+ and iCloud+.
In Apple's fiscal first quarter through Dec. 31, the company reported record services revenue of $20.77 billion, which was 17.7% of total revenue.
The stock has gained 9.2% over the past three months, while the technology-heavy Nasdaq-100 has advanced 7.0% and the Dow Jones Industrial Average has slipped 0.5%.
-Tomi Kilgore
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March 07, 2023 07:30 ET (12:30 GMT)
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