Apple's slow motion paradigm shift

Tim Cook has been selling the Apple-as-services story for two and a half years. Half of Wall Street still doesn’t buy it.

From Tim Cook’s analysts call, Jan. 26, 2016:

Services are becoming a larger part of our business, and we expect the revenues to be the size of a Fortune 100 company this year. Our services offerings are now driving over 150 million paid customer subscriptions; this includes our own services and third-party content that we offer on our stores. We feel great about this momentum, and our goal is to double the size of our services business in the next four years.

From Loup Ventures’ Gene Munster, Aug. 21, 2018:

Apple’s investment paradigm is shifting, as evidenced by the stock’s recent, steady rise.

• Prevailing view: it’s a product cycle story. History supports this view — over the past 4 years, shares of AAPL have increased, on average, 4.1% from Aug. 1 to Sept. 1 in anticipation of new iPhones. Shares have fallen an average of 1.7% between mid-Sept. and mid-Oct.
• Emerging view: Apple as a Service. Stable iPhone business, Services growth, a significant capital return, and new products.
• Skeptics of the Apple as a Service paradigm shift attribute the stock’s run to the anticipation of new iPhones this fall.

Factoring in the buyback, 7% EPS growth, and Apple’s current 15.8x forward multiple suggests a $300 per share price in 2 years. Assuming the paradigm shift yields a higher multiple (18x) implies a $340 per share price.

My take: Sell-side Apple analysts can be divided into roughly two groups: The greens, who buy the paradigm shift, and the blues, who don’t.

Below: My full list of Apple price targets, as accurate and up-to-date* as I can make it. Corrections appreciated.

*TipRanks ($) reports that an analyst who shall remain unnamed (long story) is sticking with a Street-high price target of $275.