Apple stock could skyrocket and climb by 50% ahead of the iPhone 7 release, says Piper Jaffray analyst Gene Munster. Shares surged today following his bullish report, climbing by as much as 4.59% to finally top $100 again at $100.72. The stock hasn’t touched $100 in several days but then only briefly. It hasn’t spent a sustained amount of time higher than $100 since earlier this month, although Apple shares have spent most of the year in a steady downward trend.
A history of Apple’s stock cycles
In a report dated Jan. 21, Munster explained the historical trends Apple stock has followed in and around each iPhone cycle. He expects the iPhone maker’s shares will behave in a similar fashion to how they did in past iPhone number change cycles and that the company’s P/E multiple will expand before the launch of the iPhone 7. He added though that the difference this time around is that iPhone unit shipments are expected to decline for the first time ever in the March quarter. Currently he is expecting a 10% unit decline year over year.
Munster also took a look back at Apple’s stock price movement, noting that in only one month did the stock trade at a lower multiple than the current one, which is 9.7 times Munster’s calendar year 2017 earnings per share estimate. In April 2013, shares were trading at 8.94 times forward earnings per share after the iPhone 5 launch didn’t go as well as investors had hoped it would. The March 2013 quarter saw iPhone units grow in the single digits, and Apple had more than one forward quarter of revenue growth in the single digits.
Apple will recover
The Piper Jaffray analyst adds that there are many similarities with 2013. He notes that the iPhone 6s cycle was “relatively disappointing” and that Wall Street is widely expecting iPhone units to decline year over year for the March quarter. Also it’s expected that we’re seeing multiple quarters with growth in the single digits again.
However, he added that Apple stock climbed by over 50% a year after the trough in April 2013. By the time two years had passed by, shares were up by more than 120%. As a result, he expects Apple shares to be able to recover in a big way because of the similarities between then and now. Also he believes that most of the company-specific bad news is already priced into the iPhone maker’s shares.
Expect a multiple expansion
Also looking at Apple’s share price history, Munster said multiples expanded between March and September in three of the four last new iPhone launches. He said the only exception was the iPhone 6s cycle last year and that during all four periods, the average multiple expansion was 11%, and the range was between a decline of 8.6% for the iPhone 6s launch and an increase of 31.3% for the iPhone 5 launch.
And over the last two full iPhone cycles, which he said we’re getting into this year, Apple’s multiple has seen an average expansion rate of 30.2%. Also the average forward multiple was 15.93 times over the last two full cycles versus the average 12.24 times for the last two “s” upgrades.
“We believe the relative consistency in multiple expansion heading into a new product cycle combined with the typical tight multiple ranges in recent history for these launches suggests that shares of AAPL could have over 50% upside heading into the iPhone 7 launch in September,” the analyst wrote.
He has an Overweight rating and $179 price target on Apple stock.