Credit Suisse Makes Case That Apple (AAPL) Is the Most Valuable Company in the World
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Price: $309.35 -0.63%
Rating Summary:
45 Buy, 28 Hold, 9 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
45 Buy, 28 Hold, 9 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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After selling off an astonishing 4.5 percent Wednesday on a vicious downgrade and the general market slump, shares of Apple (Nasdaq: AAPL) are rebounding nearly 3 percent today after Credit Suisse initiated coverage on the stock with an Outperform rating and $500 price target. The aggressive price target represents 52 percent upside from yesterday's close, and would make Apple the most valuable company in the world.
In its rating, Credit Suisse analyst Kulbinder Garcha concluded that Apple should be able to deliver outsized revenue and earnings growth of 50% and 46%, respectively, over the next two years. This would be significantly greater than the consensus expectations.
Garcha said Apple's iPhone is still the driver. He sees Apple's smartphone share rising to 20 percent in 2012 driving volume of 72 million units in 2011 and 112 million in 2012. This would translate into revenue for Apple of $47 billion and $67 billion, respectively.
On the iPad, Garcha sees the tablet market rising to $120 billion in 2015. In the segment, Apple will continue to dominate and they see the company maintaining share as high as 50 percent long-term. By 2012, the Apple's iPad could become a $34 billion business. In addition, iPad gross margins could expand to 35 percent by the end of this year, up form 27 percent in 2010.
Garcha said he still sees room for an extra $10 per share in earnings, driven by a low-end iPhone, a greater push into emerging markets, along with enterprise traction.
Garcha said bringing a low-end iPhone is necessary and significant. "From a financial perspective, based on our proprietary market by price point and bill-of-materials (BOM) analysis, we believe that a low-end iPhone could generate $26bn in incremental sales and $6bn, or 28% of incremental operating profit by 2015 compared to 2010. In other words, we would argue that within the next 12-18 months, it is necessary and advisable that a low-end iPhone be launched," he said.
While Apple has 236 stores in the US they only have four in emerging markets, all in China. "... by more aggressively building out an emerging market strategy and based on income distribution and current spend per capita on Apple products, even after allowing for affordability issues, emerging markets could drive an incremental revenue opportunity of $19bn and earnings of $4.3bn, or 20% of incremental operating profit by 2015 compared with 2010," Garcha stated.
Garcha thinks Apple's iPad could be a "Trojan horse" in the corporate world, where Apple is weak. "A more aggressive strategy here could add some $20.4bn of revenues and $3.3bn or 16% to operating income in the long term compared with 2010," he said.
On being a home entertainment provider, Garcha thinks Apple could successfully introduce an actual television set given its leadership in terms of innovation in hardware, software and services.
The firm sees EPS of $25.11 in FY11 (consensus is $22.99) and $32.49 in FY12 (consensus is $26.31).
Currently Apple trades at a P/E multiple of just 8.9x 2012 estimates, excluding cash. "We believe (Apple) is inexpensive, given the potential for earnings growth of 46% over the next two year," Garcha states.
A price of $500 per share would equal a market capitalization of $466.23 billion, making it the largest company by market cap in the world. Exxon Mobil (NYSE: XOM) is currently at $400 billion.
Shares of Apple are up 2.7 percent today to $338.67.
In its rating, Credit Suisse analyst Kulbinder Garcha concluded that Apple should be able to deliver outsized revenue and earnings growth of 50% and 46%, respectively, over the next two years. This would be significantly greater than the consensus expectations.
Garcha said Apple's iPhone is still the driver. He sees Apple's smartphone share rising to 20 percent in 2012 driving volume of 72 million units in 2011 and 112 million in 2012. This would translate into revenue for Apple of $47 billion and $67 billion, respectively.
On the iPad, Garcha sees the tablet market rising to $120 billion in 2015. In the segment, Apple will continue to dominate and they see the company maintaining share as high as 50 percent long-term. By 2012, the Apple's iPad could become a $34 billion business. In addition, iPad gross margins could expand to 35 percent by the end of this year, up form 27 percent in 2010.
Garcha said he still sees room for an extra $10 per share in earnings, driven by a low-end iPhone, a greater push into emerging markets, along with enterprise traction.
Garcha said bringing a low-end iPhone is necessary and significant. "From a financial perspective, based on our proprietary market by price point and bill-of-materials (BOM) analysis, we believe that a low-end iPhone could generate $26bn in incremental sales and $6bn, or 28% of incremental operating profit by 2015 compared to 2010. In other words, we would argue that within the next 12-18 months, it is necessary and advisable that a low-end iPhone be launched," he said.
While Apple has 236 stores in the US they only have four in emerging markets, all in China. "... by more aggressively building out an emerging market strategy and based on income distribution and current spend per capita on Apple products, even after allowing for affordability issues, emerging markets could drive an incremental revenue opportunity of $19bn and earnings of $4.3bn, or 20% of incremental operating profit by 2015 compared with 2010," Garcha stated.
Garcha thinks Apple's iPad could be a "Trojan horse" in the corporate world, where Apple is weak. "A more aggressive strategy here could add some $20.4bn of revenues and $3.3bn or 16% to operating income in the long term compared with 2010," he said.
On being a home entertainment provider, Garcha thinks Apple could successfully introduce an actual television set given its leadership in terms of innovation in hardware, software and services.
The firm sees EPS of $25.11 in FY11 (consensus is $22.99) and $32.49 in FY12 (consensus is $26.31).
Currently Apple trades at a P/E multiple of just 8.9x 2012 estimates, excluding cash. "We believe (Apple) is inexpensive, given the potential for earnings growth of 46% over the next two year," Garcha states.
A price of $500 per share would equal a market capitalization of $466.23 billion, making it the largest company by market cap in the world. Exxon Mobil (NYSE: XOM) is currently at $400 billion.
Shares of Apple are up 2.7 percent today to $338.67.
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