Wedbush: After brutal sell-off, what's next for Apple?

Analyst Daniel Ives has a $275 Apple price target and Christmas wishlist for Apple investors, naughty and nice.

From a note to clients that landed on my desktop Christmas Eve:

With shares of Apple down 30%+ since the company reported earnings in early November, sentiment among tech investors is as negative as we have seen in many years of covering the name. We would equate it to sentiment seen in 2008/2009 on shares of Apple with many on the Street pricing into the stock a meaningful apocalyptic iPhone unit deceleration not just for 2019 but possibly for 2020 as well, a theory we vehemently disagree with looking out over the next 12 to 18 months.

While the start of this selling avalanche was self-inflicted when Cook & Co. shocked the Street by pulling iPhone metrics on its November conference call clouding the transparency of the name (and the multiple reflecting it), the weaker Asia supplier checks on XR, China tariff and trade concerns, Qualcomm injunctions in China/Germany, and a broader market panicked about a myriad of macro issues has essentially led to a “perfect storm” for Apple’s stock.

While this sell-off has been a brutal and painful one that is hard to stomach for investors and caused many of our peers to move to the sidelines on the name, we strongly believe that the valuation on the name at current levels and further monetization of its 750+ million active iPhone installed base through future upgrades and a $50 billion+ services revenue stream speaks to our bullish thesis on Apple for the coming years which remains unchanged.

We view iPhone growth as mature going forward and softer than expected for FY19 with XR the culprit, but far from the doomsday dynamic currently being priced into shares at current levels. On a sum-of-the-parts valuation, given our view that the services business on a standalone basis is worth between $400 billion to $450 billion and factoring in the company’s ~$240 billion of cash, investors are essentially getting the unparalleled iPhone franchise for roughly 1x revenues at current valuation/ levels.

Maintains Overweight rating and $275 price target.

Ives’ “Top 10 Christmas Wish List for Apple Investors in 2019”

1. iPhone units shipped for FY19 is north of 200 million, which in our opinion is the line in the sand for the bulls/bears.
2. China consumer iPhone upgrades for FY19 hit 30 million units of the 70 million in the window for an upgrade opportunity out of this key region.
3. Settle the Qualcomm patent issue once and for all and remove the growing worries on this legal headwind.
4. Services business growth trajectory hits revenue of $45 billion+ for FY19.
5. More transparency and metrics around the services business starting on the upcoming January call, as this will be key to the eventual re-rating in the stock on the services thesis.
6. Finally Cook & Co. do a meaningful acquisition of a major content player, movie studio, etc. to catalyze streaming initiatives in FY19 and beyond and ultimately launch a standalone streaming service by the end of 2019.
7. Announce an accelerated buyback program in light of the stock’s 30%+ draconian sell-off since early November.
8. Lowering prices on some OLED models to ~$600 vs. the current $750 base price in the next iPhone cycle for mid to late 2019 to catalyze upgrades, especially out of the all-important China region.
9. China trade war settles in early 2019 with no disruption to the flagship Foxconn factory and/or iPhone tariff noise and fears from the Trump administration does not become a reality.
10. Announces a strategic partnership with Tesla to help lay the path to a new growth opportunity on the EV auto TAM for the next decade, as we still believe a partnership with Tesla is the more likely path rather than the much discussed acquisition scenario between Apple/Telsa—although that still remains a wild card over the coming years.