J.P. Morgan Equity Research analysts Mark Moskowitz and Mike Kim raise Apple Inc. (NASDAQ:AAPL)'s price target from $600 to $615 and rate the company as Overweight.
Apple's price target raised
Analysts are lifting their revenue and earnings estimates for Overweight-rated Apple Inc. (NASDAQ:AAPL). The flow-through effects boost our Dec 2014 price target to $615, up from $600 previously. Analysts' iPhone and Mac estimates increase, while iPad estimates fall modestly. Despite the mixed segment trends, the boost in consolidated earnings comes at a time as other tech peers exhibit limited upside potential. The next goalpost is when the debate over “what’s next?” returns. They do not know what is next. If the only major catalyst after China Mobile penetration is a larger-sized iPhone screen (or iPhone 6), however, then analysts' next estimate revisions may not be as large. JPMorgan's research indicates the larger-size screen adoption wave may have peaked already.
Apple iPhone 5S key driver behind earnings revision
A key driver behind analysts' earnings revisions relates to the iPhone 5S. In their view, this upgrade cycle is likely to be much bigger than the prior transition from the 4/4S to the 5. They think the spec improvements on the 5S are significant enough to spur users to upgrade from the 4 and 4S after passing on the 5.
Analysts at JPM revised model incorporates China Mobile-related iPhone units. While a formal announcement has not been made, their research indicates that iPhone units to China Mobile (CM) could be in the range of 2M/quarter in the initial stages. Analysts think unit sales could manifest as early as the Mar-Q (F2Q14). CM could be a bigger source of iPhone sales than 2M/quarter, but they prefer to be cautious for a couple of reasons.
Apple stock upwards trend
Analysts' F2015 revenue and earnings estimates outpace consensus, partly owing to China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941) assumptions. As the gap narrows, analysts expect Apple Inc. (NASDAQ:AAPL)’s stock to be upward trending in coming months.
While Apple Inc. (NASDAQ:AAPL)’s recent refreshes with the iPad Air and iPad mini could offer an offset to slowing market growth, there could be an issue after the refresh plays out, which is why analysts lower their iPad estimates modestly.
The future of Apple
What’s next? Analysts do not know. One potential is a larger screen for the iPhone, probably in a 4.5-5.0-inch form factor. Given most of the smartphone market is already there, a land grab campaign may be required on the part of Apple Inc. (NASDAQ:AAPL), which can be more difficult than penetration of new adopters.