JPMorgan analysts’ new price target of $145 per share would value Apple at $845 billion

Apple stock keeps setting new record highs this week, with shares rising steadily over the last few trading days. The stock climbed as much as 1.87% to $123.30 per share during regular trading today after JPMorgan analysts bumped up their price target.

How many Apple Watch units will be sold?

In a report dated Feb. 11, analysts Rod Hall, Ashwin Kesireddy and Rajagopal Raghunathan reiterated their Overweight rating on Apple. They also increased their price target from $140 to $145 per share, which would value the company at around $845 billion. Apple’s current market capitalization is $712.3 billion.

The reason for the higher price target is the addition of the Apple Watch into their estimates. The JPMorgan team examined their estimates for the number of iPhone owners who have a model that is compatible with the smartwatch, which works with the iPhone 5 or newer.

As of the end of March, they expect this user base to be 400 million, and they expect it to balloon up to 525 million at the end of this year and 627 million at the end of 2016. Here’s a look at their quarter by quarter expectations for growth of the addressable market for the Apple Watch. All graphs and tables are courtesy JPMorgan.

Apple Watch

How many iPhone owners will actually buy an Apple Watch?

The JPMorgan team expects that about 26.3 million iPhone owners will buy one of the Apple Watch models, which assumes a 5% penetration rate by the end of this year. On the bearish side, they suggest 2% penetration with 10.5 million units sold this year, and then on the bullish side, they suggest 8% penetration with 42 million units for this year.

Here’s a look at the growth rate they’re looking for.

Apple Watch

All about Apple’s margins

Just as with the iPhone and iPad, margins will play an important role in Apple Watch sales. The JPMorgan team assumes that 95% of the smartwatches Apple sells will be the least expensive Sport Model, while 4% will be the Stainless Steel model and 1% will be the gold model. The result is an EBIT margin of 39% for the Apple Watch.

On the bullish side, they see a margin of 44% if 90% are the Sport model, 8% are the Stainless Steel model and 2% are the gold model.

Apple Watch

Based on the variations of their assumptions, the analysts say their earnings per share estimates for this year range from $9.10 to $10.06 per share. This illustrates just how big of a difference sales of the Apple Watch could have on the company’s bottom line.