Apple Inc. (NASDAQ:AAPL) yesterday reached an all time high of $665 a share. The company’s market capitalization is now close ro $629 billion, surprasing the record reached by Microsoft Corporation (NASDAQ:MSFT) in 1999. Topeka capital Markets has placed a $1,111 price target on Apple Inc. (NASDAQ:AAPL).
In a report titled The $500B+ Market Cap Fallacy Put to Rest, Next Stop $1 Trillion, Topeka Capital Markets notes the following information about Apple:
In June, analysts and market pundits expressed growing concern that Apple would succumb to
the $500 billion “market cap flu” and the stock would finally roll over. In a note on June 18, we
highlighted why we felt this was a fallacious argument and pointed out that investors should
think of Apple’s market cap in terms of “trillions” and not “billions”. Based on our calculations,
Apple is now the most valuable company ever, finally surpassing the market value of Microsoft
at the peak, and removing a key sentiment barrier for the stock.
David Einhorn, CEO of Greenlight Capital, noted that there is no ‘law’ which prevents a company from being worth over $1 trillion. Einhorn states that this is just a psychological barrier, not an economic barrier.
Topeka’s earning model assumes $155 billion in revenue for this fiscal year. The model assumes revenue of $175 billion for 2013 and $196 billion of revenue for 2014.
Earnings per share are projected to be $43.69 for fiscal year 2012. For the years 2013 and 2014, Topeka projects Apple Inc. (NASDAQ:AAPL) to earn $49.14 and $54.88 respectively. Using these numbers, Topeka puts a price per earnings of 15.2 x for the current fiscal year. For 2013 and 2014, Apple will have a price earnings ratio of 12.1. However, the PE estimate for 2014, is based on the current share price, not the target price.
Using a target price of $1,111, Apple will be trading at a PE of 20 using earnings of $54.88. Topeka does not project how much cash Apple will have in 2014, but right now the tech giant has a cash hoard of over $100 billion. Net of cash, the PE based on a target price of $1,1111, could be closer to the mid teens.
The iPhone 5 to be released in a few weeks, is expected to give Apple a big boost in earnings. Many analysts are expecting sales in the hundreds of millions.
Disclosure: No position in any securities mentioned in this article