Technology

Why UBS Is Growing Bullish on Apple iPhones and Autos

Chris Lange

Published: March 31, 2021 10:59 am

Apple Inc. (NASDAQ: AAPL) has more or less been trading sideways for the entire month of March, despite being one of the most popular stocks in the market. However, one analyst sees this changing. The very bullish upgrade is due in part to Apple’s potential in the auto market.

UBS upgraded Apple to Buy from Neutral and raised its price target from $115 to $142, implying upside of 18% from the most recent closing price of $119.90. The brokerage firm made this upgrade to reflect a more stable long-term iPhone demand backdrop with better average selling prices and to capture the “real” option value of Apple’s likely entry into the auto market that it believes is not reflected in Apple shares.

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UBS further detailed in its report:

While our analysis of iPhone procurement and mix drives our FY22 estimates higher and our “Core” value to $128 (from $115), our analysis of the auto market and Apple’s multi-year investment in the industry (self-driving car licenses and LiDAR patents) suggests to us Apple’s auto optionality is worth at least an incremental $14/share. From a timing perspective, our upgrade should also capture the relative and absolute outperformance that typically accrues to Apple shares 180 days prior to fall iPhone launches.

Based on its analysis of iPhone procurement, upgrade rates and customer retention, specifically outside of China, UBS believes aggregate iPhone demand in fiscal 2021 and 2022 should be relatively stable and in line with historic demand trends.

Although a supercycle is unlikely to materialize, UBS modestly raised its fiscal 2021 iPhone estimate by 5 million (2.3%) to 220 million, reflecting better 5G demand in China. Even more, the stickiness of the iPhone ecosystem pushes the fiscal 2022 estimate 10 million higher (5%) to 215 million, in line with normalized long-term demand trends. For context, in the three years prior to fiscal 2019, iPhone units averaged about 215 million units per year while the global smartphone market was flattish.

The primary driver of UBS’s estimate revision is a more stable iPhone backdrop with better average selling prices. However, the firm believes a sum-of-the-parts framework is more appropriate going forward given “real option value,” specifically the auto opportunity.

Apple stock traded up over 2% on Wednesday to $122.71, in a 52-week range of $59.22 to $145.09. The consensus price target is $152.01.