Apple Should Be Valued Like Internet, Not Hardware, Company
Apple ( AAPL ) is grossly undervalued because investors wrongly treat it like a computer hardware company, Needham analyst Laura Martin said in a research report Tuesday. Martin initiated coverage of Apple with a strong buy rating and a 12-month price target of 150. Apple stock fell 1.2% to 109.81 on the stock market today . Based on four different valuation methodologies, Apple’s long-term value is 180, or 64% above current levels, she said. “For each of the past five years, Apple’s profit margins have been higher than Disney ’s ( DIS ) and its asset productivity (i.e., earnings per asset employed) have been higher than Facebook ’s ( FB ),” Martin said. Apple “should not be valued like a hardware company if its fundamentals are better than world-class content and Internet companies.” If Apple were valued as a top content or Internet company, its shares likely would trade at 200, she said. Apple’s business also is similar to a cable company’s recurring subscription model, she said, and Apple’s iPhone customers are predictably loyal and upgrade to the latest smartphones roughly every two years. If Apple was valued at an average cable company multiple today (even though Apple has a far less capital-intensive business model), Apple would trade at 180, she said. Under Needham’s worst-case scenario, where Apple has 1 billion active devices and zero unit growth for the next 20 years, the stock still should be valued at 168, she said. RELATED: Apple Stock Rises On Upbeat Analyst Reports, Video Services Upside