Apple Inc. (AAPL) Stock Notches Another New High: How Far Is $1T Valuation?

Updated on

Apple Inc. (NASDAQ:AAPL) stock roared to another record high on Friday, carrying the company’s market capitalization almost to $900 billion in the wake of Thursday night’s earnings report. Investors cheered the better-than-expected numbers without the iPhone X being included. Several analysts raised their price targets for Apple Inc. (AAPL) stock, and those who are salivating for that $1 trillion market cap can nearly taste it.

However, one bear points out something most are ignoring—because this is Apple Inc. (AAPL) we’re talking about.

Apple stock target upped by UBS

UBS analyst Steven Milunovich reiterated his Buy rating on Apple Inc. (AAPL) stock and boosted his price target from $180 to $190 per share. He noted that the company has accelerated its earnings per share growth for the last four quarters, and he expects two more such quarters before the company’s earnings per share flatten out.

He also sees “new energy” in the Apple Inc. (AAPL) story due to the “feature leap” in the iPhone X and also improvements in Mac and iPad sales, service revenues, and wearables. One of the issues bears have taken with Apple stock is the fact that the company has relied so heavily on the iPhone for its growth, but Milunovich said that the iPad has finally reversed its declines with a second growth quarter, and Macs surprised to the upside while the number of Apple Watch units jumped by more than 50%. Services revenues also grew 24%.

The analyst also added that Greater China is also a key piece of the puzzle, calling the country “a swing factor” in fiscal 2018. Apple returned to sales growth in Greater China during its fourth fiscal quarter.

Waiting for “the main event”

Deutsche Bank analyst Sherri Scribner boosted her price target for Apple Inc. (AAPL) stock from $140 to $152, but she maintained her Hold rating on Apple stock, keeping her one of the very few holdouts in the bear camp. She believes investors and analysts are waiting to see whether Apple Inc. (AAPL) can really sell “significant quantities” of an ultra-premium phone with a $1,000 price tag. As a result, she feels that bulls and bears will remain in their respective camps on Apple stock until the answer to this question becomes clear.

She still sees Apple Inc. (AAPL) stock as a “trading stock” and expects it to trade “at the higher end of their historical range while current market multiples are elevated and the iPhone x remains in short supply.” She increased her price target for Apple Inc. (AAPL) stock because of a higher market multiple but remains conservative on the company in the long term.

Apple’s earnings results weren’t perfect

While Apple Inc. (AAPL) stock bulls gushed on about everything that went right in Apple September quarter, Scribner offered up some disappointments. She noted that although iPhone units were up 2% year over year and in line with expectations, iPhone revenues missed because the average selling price was lower than expected, coming in at $618 versus the Street at $638.

This indicates that the iPhone mix was skewed more toward the less expensive models than what Wall Street was expected. She also noted that the gross margin guidance for the December quarter was lower than expected at 38% to 38.5%, and she believes some investors expected the margin guidance to be higher because of the pricey iPhone X.

Why AAPL could have trouble selling the pricey iPhone X

We would add that this could mean one of two things. Either consumers are preferring less expensive iPhone models right now and Apple Inc. (AAPL) will have trouble moving iPhone X units, or consumers who want to spend big bucks on a phone are simply holding off until the iPhone X is released. However, it seems Apple Inc. (AAPL) itself questions the iPhone mix for the December quarter based on the gross margin guidance.

Interestingly, Scribner also said that more than half the beat on earnings per share came from below-the-line items such as other income and a lower-than-expected tax rate. Apple Inc. (AAPL) beat by 20 cents per share, but 11 cents of that beat came from such items. If this were any company other than Apple Inc. (AAPL), more analysts would be pointing this out, but the company gets a pass because it’s the world’s most valuable company.

Apple Inc. (AAPL) stock rose by about 3% during regular trading on Friday, touching a new record high of $174.26 before retreating slightly.

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!