Technology

Analysts Keep Increasing Their Apple Stock Targets: Another 15% Gain Coming?

Jon C. Ogg

Published: January 15, 2020 10:55 am

Last Updated: January 30, 2020 11:11 am

Apple Inc. (NASDAQ: AAPL) stock was nothing short of spectacular in 2019 after posting gains of about 86%. The problem it faced coming into 2020 was that the share price of $293.65 at the end of the year had rallied above and beyond Wall Street’s fair value of about $266 due to the market’s strong performance. So far in 2020, analysts have rapidly increased their target prices for the largest company in the world measured by its free float.

Roughly a half-dozen analyst target price hikes were seen in the first two weeks of 2020’s trading alone. The consensus analyst target price already has risen to almost $284, and Apple’s stock price near $314 was 7% higher so far this year. Now Canaccord Genuity has jumped in on the Apple price-hike brigade, reiterating its Buy rating and raising its own target to $355 from $275.

While the momentum has been flowing into Apple shares, the stock now is nearing a $1.4 trillion market capitalization rate. No U.S. company has even been this high, and the excitement about an iPhone supercycle in 2020 is based around the launch of its 5G phones later in the year. The lower trade tensions with China also are creating an impact, as are the added sales of smartwatches, EarPods, apps and services. The recently launched Apple TV streaming service is also expected to garner additional revenue, while further locking down its customers into a lifetime within Apple’s ecosystem.

According to Canaccord Genuity’s Michael Walkley, Apple’s ecosystem now includes an install-base of more than 1.4 billion devices globally. That is generating record revenues in Apple services, while the higher-margin services revenue growth is expected to continue rising faster than the total revenue growth of the company.

On top of strong iPhone 11 sales this year (including in China), the potential launch of a lower-cost iPhone combined with the coming 5G upgrade cycle should drive demand even higher through 2021. Revenue expectations from the iPhone have been raised as follows: to $141 billion (from $139 billion) in 2019, to $152 billion (from $143 billion) in 2020 and to $159 billion (from $147 billion) in 2021. The so-called Other Products revenues (wearables, home and accessories) revenue expectations have been raised to $27.9 billion (from $27.6 billion) in 2019 to $33.5 billion (from $34.2 billion) in 2020 and to $35.1 billion (from $34.2 billion) in 2021.

After adding up the benefits and a services business already approaching $50 billion in 2019, Walkley sees the revenues in that area growing to $61 billion in 2020 and $73 billion in 2021. The Canaccord Genuity estimate for 2021 earnings went up to $17.74 per share from a prior $16.92 per share.

Walkley’s report said:

We are also encouraged by the strong demand for the iPhone 11 lineup and believe Apple will maintain its market share leadership of premium-tier smartphones that could be bolstered by a 5G upgrade cycle. Further, Apple has market share leading positions in wearables with Watch and AirPods, and both have strong sales and growth momentum.

There is also a fortress balance sheet that allows Apple to deploy capital to shareholders while it also keeps its powder dry for the future. Walkley further commented:

Following strong 2H/F’19 results and ongoing strong cash flows resulting in $98B in net cash, we anticipate management will likely continue to bolster share repurchases and increase dividends. Based on our increased C’21 estimates and expectations the shares can sustain trading at higher multiples, we increase our price target from $275 to $355 and reiterate our Buy rating.

While analysts keep stepping all over themselves for target price hikes, this is not the highest analyst target out there at all. One firm has been aggressively raising its targets ahead of the rest of analysts and the upside scenario has been shown to be supportive of a potential $400 Apple stock price by year-end.

Apple’s shares traded up another 0.5% at $314.45 on Wednesday, and its shares have a current all-time high of $317.57. The $355 target price and the dividend yield of about 1% would imply another gain of close to 15% in the coming year, if Canaccord Genuity is proven correct.