Goldman Sachs adds Apple to 'conviction buy' list

Goldman Sachs added Apple to its ‘conviction buy’ list, keeping the 12-month price target at $163.

The bank noted shares are trading at a 2016 price-to-earnings ratio of 11x, which is a 30% discount to the S&P 500 multiple of 16x despite a 9% EPS compound annual growth rate in full year 2015-2017, as the market views it as a ‘hardware’ stock – a transactional model with limited recurring revenues and with visibility that extends only to the next product cycle.

GS thinks Apple’s business model has less in common with traditional hardware companies and more in common with companies that monetise mobile users through content and services, such as Facebook or Google.

It said that over the next year, the focus will shift from unit growth, which is slowing given a maturing smartphone market, to installed base monetisation and recurring revenues.

“Apple’s model has already tilted that way with its new iPhone 6s instalment plans, and we see the upcoming TV service as a powerful next step,” it said.

At 1323 GMT, Apple shares were up 1.5% to $115.40 in pre-market trading.