Wall Street remains highly confident in Apple stock’s (AAPL) – Get Apple Inc. (AAPL) Report gain potential. On Tuesday, September 7, two analysts reiterated their buy ratings on the stock while, in one case, bumping the price target by $10 per share to $170.
iPhone 13 and the ecosystem
As our channel recently reported, Apple has confirmed the date of its next product launch event. On September 14, the iPhone 13 will likely be unveiled alongside the Watch Series 7 and a new set of AirPods. The Cupertino company is calling the event “California Streaming” – possibly due it being held online rather than in person, or maybe because of potential news about Apple’s streaming services.
Baird analysts William Power and Charles Erlikh suggest that the event is important enough to warrant a price target bump on AAPL, from $160 to $170. However, according to the researchers, the investment opportunity transcends the success of the iPhone cycle. Rather, it is much more about the ecosystem:
“Key drivers include service revenue from the App Store, Apple Music and services like Apple Pay and iCloud. […] Apple Watch continues to grow rapidly, and with AirPods and Beats products performing well, Apple appears to be positioning the wearables segment as a larger opportunity.”
It is interesting to see how Wall Street has fully embraced Apple’s valuation multiple expansion story. Once upon a time, only about five years ago, AAPL stock used to trade at a trailing earnings multiple of around 12 times. Baird now thinks that shares deserve a 29 multiple on 2022 EPS, in part due to “growing services contribution and continued ecosystem benefits”.
App Store fears? Not so much.
The other analyst to chime in this week was Morgan Stanley’s Katy Huberty. Not to pick favorites on Wall Street, but I am always pleased to read her numbers-rich analysis on Apple. This time, her work suggests that the App Store headwinds discussed on this channel are not much to worry about.
For a bit of context, Apple has been giving in to developers in the App Store tug of war. Pressured by global regulatory agencies and tech peers like Epic Games and Facebook, Apple has made concessions on the 30% commissions that it charges for services sold through its application platform.
But Ms. Huberty says that the impact to Apple’s financial results should be minimal. In fact, she estimates that the recent App Store policy announcements could shave a maximum of 1% or 2% of Apple’s EPS. Should this be true, the impact to share price would be barely perceptible.
Share price action
The back-to-back bullish notes released by Baird and Morgan Stanley probably help to explain why Apple stock managed to climb about 1.5% on September 7, when the rest of the equities market seemed to struggle. AAPL continues to trade very close to all-time highs, and Wall Street’s consensus price target of $166 apiece suggests another 7% upside from here.
We are only a week away from the probable launch of the iPhone 13 – and Apple stock has already moved higher on the news. Do you see further upside in the near term, driven by the smartphone upgrade cycle?
Is the price right?
Looking at a company’s business fundamentals is only half the work needed to find a good stock. How much one pays to own the shares is a key factor in the success of any investment. This is why valuation analysis is so important.
Alpha Spread’s user-friendly platform allows you to estimate a stock’s fair value –through valuation multiples, discounted cash flow, and more. I believe that the service is a must for anyone looking to own the right stock at the right price. Check out alphaspread.com and get started with a 7-day free trial.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)