Macquarie Kicks Off Apple Coverage With ‘Outperform’ Rating

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Source: Thinkstock

Source: Thinkstock

Apple (NASDAQ:AAPL) received some additional analyst attention this week as Macquarie USA Equities Research initiated its coverage of the Cupertino-based company with an “Outperform” rating and a $630 price target, reports Barron’s. While most analysts that are bullish on Apple tend to focus on potential new products or new product categories, Macquarie analyst Ben Schachter instead focused his research note on the potential for increased earnings from Apple’s current line of products and services.

Schachter noted that Apple’s software, iTunes, and other services make up an “underappreciated business” that has the potential to become an important source of profits in the future. “[W]e believe that this underappreciated business will be a key profit growth driver,” wrote Schachter in a note to investors obtained by StreetInsider. “In 2012, this business accounted for just 8% of sales and ~12% of EBIT (est). We expect that by 2016 it will grow to 13% of sales and a very notable 30% of total EBIT. By 2020, it could drive almost 40% of Apple’s profits. In fact, on a gross revenue basis, AAPL’s iTunes/Software/Services business should generate ~$30b in 2014 sales.”

According to Schachter, the increasing importance of Apple’s “iTunes/Software/Services business” will correspond with a decline in the company’s hardware business. “Over the longer term, we believe that all three AAPL hardware categories will come under pricing and other competitive pressures,” wrote Schachter. “With limited insight into new features to drive these businesses, we are forecasting limited growth post the iPhone 6 upgrade cycle.”

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