Apple shares surged to new highs Monday, crossing the $1.7 trillion valuation level for the first time, and approaching $400 a share, as two more analysts lifted price targets on the company ahead of June quarter earnings due on July 30.
The bullish notes from Morgan Stanley and Wedbush focus on upbeat prospects for iPhone demand.
Apple shares have surged 36% for the year to date, increasing the company’s market cap by about $460 billion. The bullish sentiment springs from optimism about the expected launch this fall of the first generation of 5G-capable iPhones, as well as stronger-than-expected revenue from the App Store, growth in the company’s services business overall, and strength in wearables, in particular Apple Watch and AirPods.
On Monday, the focus was back on the iPhone.
Morgan Stanley’s Katy Huberty repeats her Overweight rating on Apple shares, lifting her price target to $419, from $340. In her Monday research note, Huberty focuses on Apple’s iPhone trade-in program, which she sees as a “sustainable competitive advantage.” Huberty notes that current iPhone owners are sitting on $147 billion of trade-in value, based on an average trade-in value of $164 for an installed base of 900 million iPhones. That could fund 31% of iPhone purchases over the next three years, she figures.
Huberty says that 48% of consumers have been using electronic device trade-in programs, with adoption rising. That in effect makes iPhones more affordable than they would appear at first glance, she says. Citing “improving iPhone affordability combined with an aging installed base, broader product lineup and compelling new technology features,” she lifts her iPhone shipment forecasts for fiscal 2021 and 2022 by 6% and 3% respectively.
She asserts that iPhones have 2.6 times higher residual value than comparably aged Android phones.
“With the iPhone replacement cycle already stretched to 4.1 years, increased adoption and value of trade-ins will become an accelerant of 5G upgrades, in our view,” she writes. “Importantly, we see iPhone affordability improving materially as recent reports suggest Apple 5G iPhone prices won’t change materially from their 4G predecessors, while competitors are raising prices. Combined with an installed base weighted average trade-in value of $164, net prices for iPhone 5G could start closer to $535, much lower than the average 5G smartphone price of $735 over the last two quarters.”
Wedbush analyst Daniel Ives, meanwhile, repeated his Outperform rating on Apple stock, lifting his price target to $450 from $425, and repeating his previous contention that Apple is likely to be the first company to ever hit a valuation of $2 trillion. His “bull case” target on the stock is now $525, which implies a potential valuation of $2.27 trillion.
Ives writes that there is evidence of “continued demand snapback in China during the month of June and early July despite some speed bumps,” and that “the stage is setting up for a massive pent up iPhone 12 cycle heading into the fall in this key region as well as globally.” He sees the potential for 60 million to 70 million iPhone upgrades in China alone over the next year.
Ives adds that checks with supply chain contacts “are giving us increasing confidence in the iPhone 12 growth story with strong underlying momentum into calendar 2021 on the heels of iPhone 12 which remains the linchpin to our ‘5G supercycle thesis’ on Apple.”
The Wedbush analyst contends that “the supply chain getting back to normalization ahead of expectations has been impressive and now ultimately puts [CEO Tim] Cook & Co. back in the driver’s seat to launch this 5G cycle in its typical mid-late September time frame with the smartphones hitting the shelves/website by early October.”
Apple shares on Monday were up 4%, to $399.
Write to Eric J. Savitz at eric.savitz@barrons.com
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July 13, 2020 at 10:56PM
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Apple Shares Inch Toward $400, as Analysts Boost Price Targets Yet Again - Barron's
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