In a report published this morning, Citigroup (C) analyst Glen Yeung initiated coverage on Apple (AAPL) with a “Buy” rating and $675 target price, implying a roughly 20% expected return.
After a 28% drop in the stock that began on Sept. 21, [via Forbes] “Apple shares have corrected consistent with the average correction in its own history, with companies that have achieved 4% of the S&P500, and with companies that have shown similar deceleration,” Yeung writes. “Historically, such corrections are followed by 20%-50% appreciation in the following 12 months. While a correction to below the average leaves risk, an adverse change in macro is required to take shares to these levels. While possible, we err on the side of optimism.”
The analysts also said that Apple’s share of the smartphone market is at risk from low-end smartphone versions and competition from other eco-systems.
“We see upside from tablets, but this negatively impacts [gross margin],” Yeung writes. Meanwhile, we see other risks to [gross margin] that lead us to model margins below consensus. In light of this, we see caps to Apple’s P/E multiple (reflected in our [price target]), likely promoting a more trading bias for the shares.”
AAPL is currently trading up $6.81, or 1.19%, at $578.39.