Apple (AAPL) is Under-Owned, Dividend Could Create "Scarcity" and Shares Could Skyrocket - Analyst

February 24, 2012 10:57 AM EST
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Analysts at JPMorgan had some glowing things to say about Apple (NASDAQ: AAPL) Friday; suggesting shares are under-owned and that the initiation of a dividend could create intense demand for the stock.

JPMorgan's Mark Moskowitz believes a dividend could create a scarcity issue with the shares. This is because Apple is under-owned institutionally, he said. While Apple is the largest stock in the Russell 1000, 40% of mutual funds indexed to the Russell 1000 do not have Apple as a top 10 holding. Also, if Apple initiates a divided, income-based funds would be forced to scramble to build positions. This will create a "scarcity issue" for the stock, he said.

He also notes that just 77% of Apple's shares are held institutionally, which is underweight versus the S&P 500 overall and the average technology-sector holding.

On the size of the dividend, Moskowitz said that while historically tech companies have focused on a 2% dividend yield, Apple's dividend could be closer to 3-4% given the company’s significant cash position.

The analyst said Apple is a "league of its own" with "plenty more upside." Apple continues to disrupt the tech playing field with its optimized smartphone, tablet, and notebook PC, the firm highlights. This has left many industry participants to be left scrambling to restore relevance in the next few years.

Despite the huge success of the company, penetration rates for Apple are still low - this will sustain high-growth. Commenting on this, the firm notes that Apple's global smartphone market share is 19%, versus 30% in the U.S. In PCs, Apple's global market share is 5%, versus 11% in the U.S.

"As Apple begins to drive another halo-effect with the iPhone and iPad in China and later in Latin America, we believe Apple device sales stand to exhibit a series of growth spurts. Plus, there is still the relatively untapped opportunity of the enterprise," Moskowitz said.

Moskowitz also comments that Apple's portfolio of feature rich devices should be a lead beneficiary of the social media/networking adoption curve.

The firm reiterates its Overweight rating and price target of $625.00. He said Apple’s valuation multiples could move back to a 13-15x forward P/E, versus the recently depressed valuation range of 10-12x.

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 $516.39 yesterday.

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