Apple (AAPL) PT Raised to $130 at Stifel

(Updated - November 25, 2014 10:03 AM EST)

Stifel analyst Aaron Rakers reiterated a Buy rating and boosted his price target on Apple (NASDAQ: AAPL) to f $130.00 (from $115.00).

In the report, Rakers updated his model to include the impact of Apple Watch in C2015. The firm's initial "guesstimate" on C2015 sales stands at ~19.6M units. At an ~$490 ASP they arrive at a $9.6B incremental revenue contribution. For C2016, they model $13.1B of incremental Watch revenue with 27.8M units shipped.

With an initial 40% Apple Watch GM% estimate, and maintained iPhone, iPad, and other estimates, the firm increases F2015 and F2016 revenue and EPS estimates from $213.3B/$7.69 and $242.2B/$8.88 to $218.9B/$7.85 and $253.3B/$9.22, respectively (Street: $210.8B/$7.72 and $222.6B/$8.49 – includes stock-based comp). They also initiate a F2017 estimate at $272.9B/$9.82 (street: $234.1B/$9.17).

In addition to the Apple Watch, Rakers said there will remain an upside bias to F1Q15, and F2Q15, iPhone estimates. "While we retain our 65.4M F1Q15 iPhone ship estimate w/ a strong mix-driven ASP ($/unit) increase to $680, we believe demand commentary / data points continue to point to upside bias (e.g., recent Best Buy commentary on impact of installment payments for new smartphones, tracking App Processor ship expectations, China’s 4G momentum, US wireless carrier commentary, China export data, Apple’s targeted channel inventory build, etc.)," he said. "We estimate that Apple could ship up to 12-14 million iPhones in China alone for the December quarter."

Addressing valuation, Rakers said while the the momentum could take shares to $130/share in the near-term some historical metrics could limit upside. The analyst notes that from EBITDA standpoint, shares trade at ~8x EV/EBITDA NTM consensus estimates and above the median of 6.2x since 2011 He said after gradually moving toward the median in 2011, shares have peaked at ~8.2x twice in 2012 and have not reached this level since. This leaves the firm to question whether the stock could surpass this level or history could repeat itself. On a EV/FCF basis, he notes shares trading at 12.5x vs. a median of 9.8x. He said the current levels would represent the highest level they have seen since mid-2010 but well below peak levels seen in late 2009.

Looking further at valuation, the analyst said the overall size / ownership base of Apple relative to the S&P 500 is an important consideration. "Apple currently accounts for approximately 3.8% of the S&P 500, which represents the highest level since the end of 2012," the analyst commented. "This would compare to the median of 3.2% since 2011. Apple reached a peak of 5% of the S&P 500 in September 2012 before declining to a low of 2.6% in April 2013. We will be left to gauge an Apple stock price of $130/sh. range as still only accounting for ~4% of the S&P 500 vs. the peak of 5% in 2012." When looking at NTM P/E relative to the S&P 500, we would find Apple has traded at a discount since 2012. Finally when looking at a DCF model, they find shares at current levels to be implying less than a 1% terminal growth rate assumption with a 9% WACC and based on a 3% revenue CAGR and 1% EBITDA CAGR. When using a ~3% terminal growth rate (all else equal) they would find shares valued at $130/sh.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $118.63 yesterday.

You May Also Be Interested In

• Boston Scientific (BSX) PT Raised to $83 at Stifel
• Dollar drop does not look too sustainable - ING
• Bunge (BG) PT Raised to $122 at Citi