November 3, 2017

AAPL – Market expectations are for material declines in Uniform ROA, implying upside potential is elevated should the firm merely maintain profitability at current levels


    • Apple Inc. (AAPL:USA) currently trades near recent highs, but still well below pre-2008 averages, relative to UAFRS-based (Uniform) Earnings, with a 12.7x Uniform P/E. At these levels, the market has very bearish expectations for the firm, which appear unwarranted in the context of the firm’s historically robust profitability and continued strong customer demand
    • Specifically, it would take the complete elimination of profitability related to AAPL’s iPhone business to justify current market expectations. This implies the firm only needs to sustain its current performance, without any future growth, to justify material equity upside, and suggests that downside risk is likely limited to some extent. Moreover, with more than a quarter of a trillion dollars in cash and investments on the balance sheet, AAPL is not lacking the dry powder to execute on potential growth opportunities. As such, the firm appears to present an asymmetrical risk profile, with the elevated upside potential

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