Declining iPhone sales may be the new reality for Apple (Apple Stock Quote, Chart NASDAQ:APPL) but the stock is still headed for higher ground, says tech investor Gene Munster, who thinks APPL should be considered a consumer staple company.
“I think that there’s meaningful upside to the Apple story. I suspect that this year Apple will be the best-performing FAANG stock. I know that historically, it has not gotten the multiple but I think that that will slowly change,” says Munster, founder of Loup Ventures, to CNBC on Friday.
“To put the multiple into perspective as to where I think that the stock can go, I think that this could be closer to $350 in the next couple of years, significant upside because that multiple is so low,” he says.
Apple will be reporting its fiscal second quarter results on Tuesday, with many keen to see how iPhone sales have impacted the company’s top line results this time around. Late in January when it last reported earnings, Apple posted revenue of $84.3 billion, slightly ahead of the consensus estimate of $83.7 billion, and EPS of $4.18 per share compared to the Street’s $4.17 per share. (All figures in US dollars.)
But it was iPhone revenue that caught attention, where sales fell 15 per cent year-over-year to $51.98 billion. Apple also reported a notable 26.7-per-cent year-over-year decline in sales numbers in China, which accounts for 15 per cent of its revenue.
“Our customers are holding on to their older iPhones a bit longer than in the past. When you paired this with the macroeconomic factors particularly in emerging markets, it resulted in iPhone revenue that was down 15 percent from last year,” said CEO Tim Cook.
Yet the ubiquity of Apple products like the iPhone and iPad are indications of the company’s staying power, argues Munster, who likens Apple to a consumer staple and argues that APPL should carry a multiple similar to consumer staples.
“Apple is currently trading at around 15x next-year earnings. If you look at Coca-Cola or Clorox, they tend to be in the low-20x multiples, if you look at SaaS businesses, they tend to be 40x multiples,” says Munster. “I think that the multiple will slowly go up and that can have a significant impact on the share price.”
“I think that tech can be a consumer staple and while there are fluctuations in businesses like Coca-Cola and businesses like the iPhone, I think that the same underlying message is true, which is that we cannot live without Apple, we cannot live without some of those other staples and I think that that’s the appropriate multiple in the low 20x’s,” he says.