updated 09:10 pm EDT, Wed July 23, 2014
Expects 'busy fall' with new iPhone, long-awaited 'iWatch' debuts
Despite some disappointments in Apple's latest quarterly earnings report, analysts appear to be satisfied that the company's overall financial picture is in order, particularly on the strength of rising margins and strong developing market sales. The stock closed up $2.47 on Tuesday (an increase of 2.61 percent) to close at $97.19, not far from its 52-week high. On Tuesday, RBC Capital Markets raised its year-end target price to $110, joining Barclays and Morgan Stanley in predicting the company would hit an all-time high this year.
Due to the dilution of shares (somewhat offset by Apple's large-scale buybacks), the company's shares would have to reach around $110 to truly top its all-time record price of $705 (roughly $100.73 in straight adjusted pricing). Several investment firms have already predicted AAPL will move beyond that, with UBS and Evercore both predicting a $115 per share year-end price. Others are more conservative, with J.P. Morgan calling for $108 per share and Charlie Wolf at Needham predicting $97, though Wolf only updates his targets twice a year and thus often runs behind other analysts.
RBC's Amit Daryanani raised his previous estimate from $100 to $110, telling his clients that he thinks Apple is undervalued. He maintained the firm's "outperform" rating, and revealed a chart with an "upside" and "downside" scenario. The upside case of $125 per share could be achieved, he said, if Apple can come up with a way to penetrate the low-end smartphone market while maintaining its traditional high margins.
Apple has not traditionally expressed any interest in low-end markets, but it is worth noting that its current free-with-contract iPhone, the two-year-old iPhone 4S, is the sixth most-popular smartphone in the world according to recent studies. Daryanani also said he sees continued growth in both the smartphone and tablet sectors, reports AppleInsider.
Pointing out that the company's $164 billion in cash equates to $22 per share all by itself, at its current sub-$100 price at P/E ratio of 14 he believes the stock is an attractive entry point for investors, with the analyst predicting growing revenues and EPS through fiscal 2015. "We believe AAPL has multiple levers ahead of it that will drive further revenue acceleration," he told investors. "Notably, we believe emerging market penetration will remain a key and material revenue driver for the company over the next several years."
Among the factors Daryanani cites are the forthcoming iPhone 6, improvements to the next iPad models, and the potential for important new product lines such as the "iWatch." He also foresees improvements to the company's capital allocation policies, such as increasing dividends, further buybacks and a possible tax break on repatriating foreign-held cash, which makes up the bulk of Apple's holdings.