Apple Inc. (NASDAQ:AAPL) is already easily the most valuable company in the world; it’s worth about $735 billion currently, about two times the size of runners-up PetroChina Company Limited (ADR) (NYSE:PTR) and Exxon Mobil Corporation (NYSE:XOM).
Despite its massive size, AAPL stock has been crushing the market consistently for years, and the AAPL stock price has soared about 70% in the last year alone.
Alas, analysts think there’s more explosive growth ahead: FBR Capital Markets initiated coverage of AAPL stock at an “outperform” rating, giving shares a 12-month price target of $185, which would make Apple the world’s first trillion-dollar company at a valuation of $1.08 trillion.
A Brief History of Apple’s $1 Trillion Ambitions
FBR Capital Markets is by no means the first research firm or prominent stock market commentator to predict a $1 trillion market cap for AAPL. But FBR’s $185 price target is realistically achievable within the next year, while some previous predictions were not.
Although financial writer and entrepreneur James Altucher deserves a ton of credit for predicting a $1 trillion valuation for AAPL way back in 2010 when shares traded at a split-adjusted price below $50 a pop, his gaudy estimates had AAPL reaching the 13-figure valuation in 2013, which clearly was a little too bullish.
Piper Jaffray, in 2012, thought the AAPL stock price would soar to trillion-dollar valuations by 2014. Hedge fund icon Steve Einhorn said Apple would “eventually” get to the $1 trillion level last year, and Cantor Fitzgerald beat FBR Capital Markets to the trillion-dollar call when it slapped a $180 price target on AAPL stock about a month ago.
But why exactly does FBR suddenly believe Apple’s stock price could reach $185 in a year? There are three factors behind its long-term bullishness:
“(1) increased focus on its services business, (2) ramping penetration of the Chinese mobile market, and (3) upside from new device categories (e.g., wearables). We believe the Street is currently underestimating the top-line/profit growth potential in these key areas with Apple’s all-important software platform at the epicenter of its solutions.”
While FBR acknowledges the fact that “the jury is out” on the Apple Watch, an increased focus on high-margin services like Apple TV and Apple Pay should be enough to vault AAPL to new all-time highs. Assuming a 24% revenue growth rate in 2015 and just a 6% growth rate in 2016, FBR applies a 20x multiple to its 2016 earnings per share estimate of $9.46 to get to its $185 level.
I agree that Apple Watch probably won’t be the immediate catalyst that gets the AAPL stock price to $185. But FBR makes a compelling case that Apple’s services and one-of-a-kind software ecosystem could.
As of this writing John Divine owns shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
