Investors Encouraged To Buy Apple Shares As Market Undervalues Services

Apple stock closed at an all-time high on Monday (Feb. 13), right after Goldman Sachs raised its price target on the stock and UBS released a report saying that, if Apple’s services were properly weighted, the company’s stock would be at least 10 percent higher than it currently sits.

Investors believe that the tenth anniversary iPhone, expected later this year, will return the company to renewed momentum. The stock closed at $133.29, topping the prior record close of $133 set in Feb. 2015. According to The Wall Street Journal, that puts Apple’s market value at about $700 billion, more than $120 billion ahead of the number two company, Google parent Alphabet.

The stock surge came after Goldman Sachs raised the price target on the stock, pointing to Apple’s 3D sensing technology. In addition, UBS reiterated Apple’s buy rating and $138 price target, suggesting the services business is likely undervalued after considering the large base of users and high retention rate the company delivers.

Although Apple is “tied to hardware, [its] services probably [are] undervalued,” UBS Analyst Steven Milunovich wrote in a note to clients. “We consider the installed base and retention rate the primary drivers of device and services value … If Apple services were valued similarly to PayPal, the stock would be at least 10 percent higher.”

AppleInsider reported that this will encourage investors to continue to buy Apple shares because the market will soon start to recognize the value of the company’s powerful services business.

Milunovich also reported on the many benefits of Apple’s services to the overall platform, including its ability to “create a customer experience that attracts consumers to premium-priced devices and to monetize Apple’s role as a content distributor and perhaps a content creator.” Apple’s Services business now generates larger profits than all non-iPhone segments combined and may total 17 percent of revenues and 25 percent profits for the company by 2020. These factors were used to argue a higher valuation for Apple.