Why One Analyst Thinks Apple Shares Still Look Cheap

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Evercore ISI analyst Amit Daryanani argues that the stock should trade like a consumer-goods company.

Christof Stache / AFP via Getty Images


shares are getting a boost Tuesday from Evercore ISI analyst Amit Daryanani, who repeated his Outperform rating on the stock while lifting his price target to $175 from $163.

In an exhaustive 126-page report, Daryanani asserts that Apple (ticker: AAPL) “remains positioned to sustain mid-single digit sales and mid-teens total return over the next several years.”

The analyst notes that Apple shares had a strong year in 2020, rallying 81%—five times the return of the

S&P 500

—creating concerns about the stock’s potential for 2021, in particular as the iPhone 12 cycle plays out. But he thinks the concern is misplaced.

Daryanani projects Apple can reach more than $7 a share in profits by the September 2025 fiscal year, up from a Wall Street analyst consensus view of $4.45 a share for fiscal 2021—driven by a combination of better monetization of the installed base with services and wearables, gross margin expansion, stock buybacks, and new products.

Apple has a path to $100 billion in revenue from services by fiscal 2025, he argues, driving margin expansion and smoothing out the more cyclical hardware business. Apple had fiscal-2020 services revenue of about $54 billion.

Daryanani thinks the wearables business can expand to $70 billion, up from $31 billion in fiscal 2020, given relatively low penetration of Apple Watch and AirPods among iPhone users.

The Evercore analyst sees four important potential new sources of growth in healthcare, advertising, cars, and augmented and virtual reality.

Not least, he thinks Apple will buy back close to $500 billion more of its stock through fiscal 2025—close to 25% of the company’s current market valuation. He notes that Apple has repurchased $253 billion of stock since it announced an intention to reach a net neutral cash position—about 94% of free cash flow. Given the company’s interest in reducing its cash position, he sees the pace of buybacks accelerating to 112% of free cash flow.

Daryanani asserts that looking at historical valuations isn’t the best method for valuing Apple shares as the story shifts more to services and capital allocation. “While the rapid rerating has led to calls that Apple is overvalued, we think a multiple in the mid-to-high 30s will be the new normal as investors come to appreciate Apple’s ability to monetize its install base while continuing to release category-defining products and services,” he writes.

His view is that the stock should trade like a consumer-goods company—and that it makes more sense to value the business as a multiple of free cash flow rather than earnings. On that basis, Daryanani writes, the stock trades at a “notable discount” to both consumer-goods companies like


(KO) and


(PEP), and luxury-goods companies like



Hermès International

(RMS.France), and

Estee Lauder


Apple shares are up 1.4%, at $125.71, in recent trading. The S&P 500 is flat.

Write to Eric J. Savitz at [email protected]

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