Apple stock picked up yet another series of price target increases from bullish analysts who predict that consumers can’t wait to drop more than $1,000 on the iPhone 8. UBS, RBC Capital Markets and Morgan Stanley all raised their price targets for Apple stock within the last three to four days. Average selling prices and high retention rates mix to paint a picture of what Wall Street expects to be a glowing iPhone 8 cycle.
Apple stock price target to $170
UBS analyst Steven Milunovich bumped up his price target for Apple stock from $165 to $170 in a note dated May 22. The research note is the third part in the series he’s been writing to determine proper pricing for Apple stock, and it focuses on average selling prices for the iPhone 8 cycle.
Milunovich feels that the consensus could be missing upside for average selling prices for the iPhone 8. He notes that the consensus stands at $680 for fiscal 2018, which is an increase of only $21 from the $659 that’s forecast for fiscal 2017. However, he feels that the average selling price for 2018 could end up being $740 if the pricey OLED iPhone makes up 45% of unit sales. His bull case for the iPhone average selling price in fiscal 2018 is $783, while his bear case is at $664.
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As a result of these higher selling price estimates, the UBS analyst raised his fiscal 2018 earnings per share estimate from $10.80 to $11.15. He also believes that the consensus could be revised upward by 7% from the current estimate of $10.42.
How much will consumers pay for the iPhone 8?
Milunovich believes that for the iPhone 8, Apple won’t be able to charge much more than what Samsung is charging for the Galaxy S8, which is $840. However, he adds that the OLED display “deserves a premium to the iPhone 7 Plus.” As such, he expects the entry level iPhone 8 model to be priced at $870, with prices going all the way up to $1,070 for the model with 256GB of storage.
He continues to expect a 15% increase in iPhone units in fiscal 2018, and he does believe that almost half of buyers will purchase the very pricey iPhone 8. He adds that Plus models have captured 20% to 30% of the unit volume, and the iPhone 7 Plus has made up about 33% of the total, according to the U.S. CIRP survey.
He also reported that during his firm’s expert panel, Neil Cybart declared that “consumers will spend $1,000 without thinking twice.” He is a bit unsure of this, although he also points out that U.S. carriers are very aggressive with their marketing and Apple’s Upgrade Program should help. He sees China as the big wildcard for the iPhone 8 cycle, although even there he expects a 30% increase in iPhone units “with a healthy OLED mix.”
Apple stock heading toward $1 trillion market cap
RBC Capital Markets analyst Amit Daryanani also raised his price target for Apple stock in a May 22 note. He boosted it from $157 to $168 and set out a path for the company to reach a $1 trillion market capitalization. Like Milunovich, he expects a tailwind from iPhone 8 average selling prices, which he expects to surpass $800 in fiscal 2018 and 2019. He expects the pricey OLED model to drive revenue growth in the mid-single digits through fiscal 2019, along with a modest increase in units and services revenue growth in the high-teens.
Another part of Daryanani’s prescribed path to a $1 trillion market cap for Apple is share repurchases. He forecasts at least $60 billion in free cash flow generated per year and estimates more than $35 billion in annual share buybacks, reducing the share count by 400 million to 500 million through fiscal 2019.