Investors may want to own Apple (AAPL) ahead of a massive product refresh cycle and introduction of new products and services, according to several Wall Street analysts.
Pacific Crest Securities analyst Andy Hargreaves raised his price target to $100 from $93, noting that investors should continue to own the world's largest company by market cap, but there is limited upside, if the company doesn't continue to innovate.
"Although we continue to believe the iPhone 6 is likely to drive meaningful upside to current sellside EPS estimates in F2015, we believe the multiple on earnings is likely to decline through the product cycle unless Apple launches a massively profitable new product or service," Hargreaves wrote in the note. "Consequently, we believe AAPL shares currently price in the majority of potential iPhone 6 upside, despite our F2015 EPS estimates now being well above consensus."
Hargreaves is positive on iPhone units for the third-quarter, as he boosted his estimate to 36 million units, up from 35 million. He also raised his fiscal 2015 iPhone shipment estimate to 191 million, up from 175 million. As such, he boosted his fiscal 2014 earnings estimates to $6.28 a share and fiscal 2015 to $7.79 a share, up from $6.21 and $6.79, respectively.
This coincides with what Cantor Fitzgerald analyst Brian White is seeing in his Apple Barometer, a measure of Apple supplier sales. White noted that June was better than it has been historically, as 97% of June sales have been reported, and were better than expected, with sales rising "approximately 0-1% MoM and were better than the average decline of 3% over the past nine years." White rates Apple buy with a $111 price target.
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Much speculation has centered around the next wave of iPhones, with Hargreaves expecting that the 4.7-inch version of the next iPhone will launch on Sept. 19, and the 5.5-inch version will launch "sometime in the December quarter." Given stable pricing trends, most notably around the iPhone 4S, the larger, 5.5-inch iPhone could have a $299 price point, which would boost Apple's notoriously high gross margins, while the 4.7-inch phone would be $199, subsidized.
"At these price points, we expect the 4.7 [inch] iPhone to drive 60% of total iPhone unit volume and the 5.5 [inch] iPhone to drive 15% of total iPhone unit volume through the iPhone 6 cycle," Hargreaves penned in the note.
Even though the iPhone refresh is expected to be massive this coming fall, much of the optimism surrounding Apple is on new products, especially since CEO Tim Cook has said that Apple will move into new areas.
One such areas is a form of wearable technology, which many have dubbed the iWatch. If the iWatch is a hit, it could generate billions in additional revenue for Apple, assuming it exceeds expectations.
White notes that over the past 18 months, Apple has received a lot of criticism surrounding the lack of a larger iPhone, given the success Samsung has had with larger smartphones; as well as the lack of new products. However, that may be all coming to an end, sooner rather than later. "We believe these concerns have negatively impacted the perception around Apple and the stock's valuation; however, we believe both issues could be solved with what we are coining a 'Fab Fall' launch, with the iPhone 6 (i.e., 4.7-inch, 5.5-inch) and the much anticipated 'iWatch.'"