The iPhone’s steady cash flow makes Apple more like a safe bond than a stock, Cowen says


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Apple iPhones are seen on display at an Apple Store on January 7, 2019 in Beijing, China.

Add Cowen to a list of Apple bulls as analysts there see the steady iPhone business driving the stock another 20 percent higher.

“With the iPhone installed base at 900 million units and oldest devices approaching five years, we believe annual iPhone shipments are running near replacement demand…the stock could be a good buy from a short-term trading standpoint as well,” Sankar added.

The iPhone business has actually been facing challenges as competition intensify in the mature market and Apple’s overpricing its latest iPhone models has also drawn criticism.

But Cowen believes that mature business offers investors a stable outlook of future cash flow for the next five years. With most devices needed to be replaced over that time period, that means annual shipments of 180 million (900 million divided by five years) can be counted on, the analysts wrote. The replacement sales offer a “potentially a supportive LT annuity for device sales.”

An annuity is a contract which promises investors a stream of income payments in the future.

Apple has made back the losses in 2018 with the stock rebounding more than 15 percent year to date. Shares of Apple rose more than 1 percent in pre-market trading on Thursday.

Cowen is also bullish on Apple’s services segment, estimating earnings from services to double in two years.

“We see scope for further expansion with increased scale in content subscriptions and higher contributions from App Store and Licensing revenues,” Sankar said.

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