One of Apple's Lowest Analyst Targets Was Just Raised Handily

Consumer Electronics

Published: January 17, 2020 9:55 am

Last Updated: January 30, 2020 11:04 am

Apple Inc. (NASDAQ: AAPL) was one of the greatest growers in the major indexes in 2019, leading the Dow Jones industrials with a gain of about 86%. Apple shares are also still chugging along in 2020, with a year-to-date gain of 7%. Analysts have been stepping all over themselves to raise their target prices on the world’s largest company by free share float. That also applies to the few analysts who do not rate Apple as Buy or Outperform.

Nomura/Instinet analyst Jeffrey Kvaal maintained a Neutral rating on Apple, but he did handily raise his target price to $280 from $225. Shares closed most recently at $315.24.

Friday’s higher target was based on strengthening iPhone demand through the first quarter, and solid first-half orders are suggesting that the iPhone 11 cycle will remain solid through fiscal 2020. Another boost is coming from Apple’s wearables, which should add some upside to results. Another boost for the target price was from higher market multiples, although this report comes with a lower than average multiple that is still higher than its historic average earnings multiple.

Kvaal said he is not willing to upgrade the rating formally beyond this target hike. The analyst still questions the enthusiasm for a 5G supercycle that has lifted the multiple to 21 times earnings. That multiple is four points higher since the iPhone 11 launch and was shown to be seven times higher than Apple’s five-year average. Kvaal’s target implies a fair value multiple of about 18.5 times earnings. The report sees robust AirPod sales, as well as in-line revenue growth from services:

AirPod orders appear set to grow roughly 60% in Fiscal Year 2020; the Pro is extending the growth trajectory set by the AirPod 2 last year. We retain comfort with our expectation of steady to decelerating Services growth. The App Store appears only on track and new services are as yet unlikely to move the needle. Our first quarter estimates match consensus sales of $88.3 billion and EPS of $4.53. We model EPS of $13.10 in Fiscal Year 2020.

As far as having doubt about the 5G supercycle, after looking back at the 3G to 4G cycle, Instinet’s channel checks indicated that Apple has ordered 75 million to 85 million iPhone 12 models for the second half of 2020. That would be up about 10% rather than about 30% from the 70 million to 75 million iPhone 11 models that the company had ordered during the second half of 2019.

Apple shares were last seen trading up another 0.45% at $316.65 shortly after the opening bell on Friday. Its shares put in an all-time high of $317.57 this week, and that $285.60 consensus target price has been rising handily since it opened.

Analyst ratings that remain cautious are typically viewed by investors with less enthusiasm than the upside calls. That said, this just removed one of the most negative price targets that Apple stock had, and this Neutral rating now comes with an at-consensus target price rather than one deeply under the typical analyst.

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