Why Apple has become a 2014 'bellwether'

CEO Tim Cook has started gaining the confidence of shareholders as Apple looks to refresh its key products in the second half of the year.

By TheStreet.com Staff Jul 14, 2014 11:42AM

The logo of Apple at an Apple Store in Hong Kong, China © Xiao qiang xg/Imaginechina/CorbisBy Chris Ciaccia, TheStreet


Apple (AAPL) shares ticked higher after Barclays upgraded the stock to "overweight," after having downgraded the stock in April for the first time in a decade.


Barclays analyst Ben Reitzes upgraded shares, giving them a $110 price target, stating that his belief in Apple CEO Timothy D. Cook has returned, as Cook has "solidified his strategy and re-gained the confidence of Apple stakeholders in many ways -- reversing many of the warning signs we saw earlier in the year." He also noted that Samsung's recent weakness provides a buffer for Apple, and the pipeline into 2015 is so strong, that Reitzes and his team are "compelled to get on board even if its midway through the rebound trade."


TheStreet.com logoReitzes raised his June quarter estimates ahead of fiscal third-quarter earnings, as he believes the iPhone is likely to continue staying strong, following the massive iPhone number (47.3 million units shipped) last quarter. He expects Apple to earn $1.24 a share on $38.33 billion in revenue, with 37 million iPhone unit shipped for the quarter. He also raised fiscal 2014 iPhone unit sales to 172 million, and bumped fiscal 2015 iPhone unit sales to 197 million, including 61.5 million in the December quarter.


Analysts surveyed by Thomson Reuters expect Apple to earn $1.22 per share on $37.87 billion in revenue, when it reports earnings July 23.


Shares of Apple were higher in early Monday trading, gaining 0.77 percent to $95.95.

Reitzes has compared Apple to Google's (GOOG) run in 2013, when Google shares were re-rated. Following a second-quarter earnings beat in the June 2012 quarter, as well as revenue acceleration, Google shares gained 94.4 percent from July 20, 2012 to Dec. 31, 2013. A similar appreciation appears happening with Apple.  "It is now clear to us that Apple may be merely in the middle of its 'Google-like' rerating since our new estimates have a similar y/y revenue acceleration starting in F3Q (380 Bps improvement from F2Q) and should continue over the next few quarters," Reitzes wrote in the note.


Aside from potentially stronger-than-expected earnings, Apple has a lot going for it, including a slew of new products and categories the company is looking to enter. Reitzes believes an Apple-branded smartwatch, dubbed the iWatch, could be launched later this year, with Nike (NKE) potentially as a major partner. If the company can sell 50 million iWatch units, that could equate to an additional $4 a share in earnings, not currently in the analysts' estimates.


In addition to the iWatch, an integration of mobile payments would be Apple's next big area of opportunity, leveraging the 800 million iTunes accounts and credit card information. On Apple's fiscal first-quarter earnings call, Cook mentioned that mobile payments is an area of intrigue for Apple, mentioning Touch ID, the company's finger-print technology in conjunction with it. "The mobile payments area in general is one that we've been intrigued with, and that was one of the thoughts behind Touch ID," Cook said on the earnings call.


Reitzes is also positive on the recent Beats Electronics deal announcement, viewing it in a very positive light "in terms of the talent acquired, like Jimmy Iovine, and the ability to sell more highly accretive accessories globally."


Apple is also expected to refresh the iPhone later this year, with Reitzes and many others expecting two versions, a 4.7-inch and a 5.5-inch version, dubbed the iPhone Air. The larger iPhone could be unveiled in November, potentially pushing back volume from late calendar 2014 into 2015. KGI Securities analyst Ming-Chi Kuo has recently stated in analysts' reports that the 5.5-inch iPhone could be delayed until later in 2014, as opposed to Apple's usual Sept. or early Oct. iPhone refresh.


With Apple shares having gained 18.8 percent year to date, Reitzes believes that Apple is now the market bellwhether of 2014, just as Google was in 2013, and there is a must-own feeling for Apple right now. "We can't help feeling the right short-term analogy from a stock standpoint is to compare Apple of 2014 to Google of 2013 and acknowledge the market wants and needs to own this bellwether into the end of CY14 and into 1H15."


More from TheStreet

 

9Comments
Jul 14, 2014 3:14PM
avatar
Was downgraded in April. About 3 months late in the upgrade.
Jul 14, 2014 3:57PM
avatar
Love Apple.  Made a lot of money on the stock.
Jul 14, 2014 4:27PM
avatar
Apple needs to have replaceable batteries and expandable storage via micro sd card slot. I loved my previous iphone but getting a Samsung Galaxy note 3 is so much better. Upgrading the 32gb of internal memory with a 64gb micro sd card (~$30) give me 96gb which I would have to pay apple over $300 more to get. Also I have 2 extra batteries (~$10 each) so I dont have to depend on a outlet to recharge. Batteries are the first thing to degrade on any phone so for Apple it is a built in kill switch forcing people to upgrade.
Jul 14, 2014 11:49AM
avatar
Yes the magic word throughout the business and investment world is confidence.  Confidence can come and go and I have very little of it in Mr. Cook.  Steve Jobs was and forever will be Apple.
Jul 14, 2014 2:20PM
avatar
Bellwether for...?

Apple is a cardboard cut-out, not a real business. 
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

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.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

133
133 rated 1
286
286 rated 2
441
441 rated 3
737
737 rated 4
614
614 rated 5
606
606 rated 6
621
621 rated 7
441
441 rated 8
317
317 rated 9
122
122 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
BBBYBED BATH & BEYOND INC10
TWXTIME WARNER Inc10
COPCONOCOPHILLIPS9
HDHOME DEPOT Inc9
VZVERIZON COMMUNICATIONS9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.