Inside Wall Street: Still bullish on Apple

Street analysts look beyond quareterly results, focuses on multiple catalysts for more global growth ahead.

By Gene Marcial Jul 27, 2012 6:12PM

Image: Apple logo © BECK DIEFENBACH//ReutersWall Street isn't freaking out over Apple (AAPL). Facebook (FB), on the other hand, is a different matter. But that's a story for another column.

 

Most professional Street watchers of the stock remain bullish on Apple, forecasting that it will continue to climb to record highs, and some put Apple's intrinsic private market value at more than $1,000 a share.

 

Here are some of the reasons why:

 

The Street had cautioned against a summer slowdown in iPhone sales, so it wasn’t much of a shocker. But more importantly, most of the bulls are looking beyond the September quarter, focusing more on a number of catalysts they see for 2013.

 

As gigantic as Apple’s markets have grown, they see the potential for more global growth as even more extraordinary, with sustained momentum in the continued swelling demand for iPad, the launch of several new products in the pipeline -- including the next generation iPhone 5, Apple iTV, introduction of the new MacBook series, the launch of a new mini iPad -- and possibly going into social media through an acquisition.

 

The possibility of Apple coming out with a mini iPad is stirring near-term excitement. "Although speculative, we think the introduction of a smaller, less expensive iPad seems likely and will probably be incremental to revenue and margins," says Wiliam V. Power, analyst at investment firm Robert W. Baird, rates the stock as a outperform. "Given what we continue to view as strong medium- and long-term growth opportunities, we would be buyers on anticipated weakness," says Power, who has a price target of $740 a share.

 

By this time, most of the Apple skeptics and investors who have soured on the stock have probably bailed out. After Apple’s downbeat second-quarter results announced July 19, the stock quickly tumbled to $604 a share, from $614.32 earlier in the trading session. It closed Friday at $585.16.  

 

The sharp drop in sales below most investors’ expectations was largely due to anticipated demand for new product introductions, "but we still see Apple as a premier growth stock trading at an attractive valuation, and we view the decline as an enhanced buying opportunity," says Scott Kessler, analyst at S&P Capital IQ. He is maintaining his buy rating  on Apple, with a 12-month price target of $800.

 

"We retain our outperform rating on Apple," says Keith Bachman, enterprise hardware and imaging analyst at BMO Capital Markets, "since we think Apple’s positive stock price movements are highly correlated to product cycles." He believes Apple’s stock will move higher through the year's end as the company readies to launch a new iPhone, iPad, and TV in the next few quarters.

 

Apple posted second quarter revenue of $35 billion, up 23% from a year ago, and earnings of $9.32 a share, up 20% from the year-ago quarter. Predictably, sales in Western Europe were weak but remained positive in the U.S. and China.

 

Despite the slowed sales, the China market is still far from saturation, notes Hendi Susanto, analyst at investment firm Gabelli & Co., who rates Apple as a buy. The new iPad sales in China only officially started on July 20, and the new MacBook series started selling in the third week of July in that country, notes the analyst.

 

"We prefer focusing on Apple’s increasingly bigger earnings power," says Susanto, who forecasts the company will earn $46 a share in 2012, $57 in 2013, and $69 in 2014 -- a huge leap from 2011's $27.68. Based on its highest quarterly shipment profile and the analyst’s near-term shipment growth estimates, "we believe Apple’s supply chain has the capacity to generate $45 billion of quarterly revenues in 2013," figures Susanto. More specifically, Apple’s supply chain is capable of quarterly shipments of 37 million of iPhones with potential revenues of $24 billion, 17 million of iPads worth $9 billion, and 5 million of Mac computers worth $7 billion, according to Susanto.

 

The analyst also views the drop in Apple’s stock price, attributed to the cyclical nature of its product transition weakness, as a buying opportunity. Based on a stock price of $600 a share, the stock is trading at 5.9 times Susanto’s estimated 2013 EBITDA of $76.3 billion, and 13 times estimated 2011 earnings of $57 a share. The stock is very much undervalued, according to the Gabelli analyst, who puts the private market value of Apple based on 2013 estimates at $1,130 a share.

       

More from Top Stocks

Tags: AAPLFB

VIDEO ON MSN MONEY

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

MARKET UPDATE

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.

Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More


Currencies

NAMELASTCHANGE% CHANGE
There’s a problem getting this information right now. Please try again later.