Can Apple Inc. (AAPL) Reach This New Stock Price Target?

Advertisement

When it comes to Apple Inc. (AAPL), most of the focus tends to be on iPhone sales, but every now and then, an analyst reminds us that there’s more to the pie than just the iPhone.

Can Apple Inc. (AAPL) Reach This New Stock Price Target?This time Credit Suisse (CS) analysts are reminding investors that they may be under appreciating Apple Services and how much they can boost the iPhone maker’s top and bottom lines.

AAPL Stock Price Target: $150 Per Share

Credit Suisse analyst Kulbinder Garcha and team said they’ve increased their price target on Apple stock from $140 to $150 per share and provided in-depth analysis on the company’s services offerings. They believe that the company’s services could see their gross profits more than double by 2020. They estimate that services gross profits have skyrocketed from $3.2 billion in 2010 to $14.5 billion now, representing 15% of the total group.

Their analysis suggests that gross profits for the segment could climb to $33.7 billion and make up 29% of gross profits by 2020 on the back of three main drivers.

Apple Benefits From a Huge Install Base

Garcha and team note that Apple currently enjoys an installed base of more than 1 billion active devices and nearly 600 million “highly affluent” and “transacting” users. In fact, Apple’s users make up 66% of mobile commerce and spend seven times more than Android users.

Second, they expect that users will each spend $113 per year on Apple services five years from now, compared to the current per-user spend of $61. They note that current uptake from the growing number of offerings will benefit from Apple Pay, Apple Music and iCloud growth and that

Third, they see opportunities in TV and video opening up for Apple at some point in the future, although they acknowledge that the company will have to face some challenges in this area. Among the options they see in media are “organic or piecemeal options,” which they define as “smaller deals for content acquisition/ creation” or “larger bold options in the form of acquiring Netflix.” They do admit that it’s highly unlikely that Apple will acquire Netflix (NFLX) but call the idea “an interesting route.”

They also estimate that about 55% of long-term gross profits from services could be annuity-based due to the growth not only in services but also the addition of the iPhone upgrade installment plans.

AAPL stock edged higher Monday as much as 1.01% to $111.10 per share in afternoon trading before falling along with the rest of the market in Tuesday’s morning trading.

EDITOR’S NOTE: This story listed Apple’s services gross profits as $3.2 billion in 2020, which has not come to pass. We have corrected this to say 2010, and we apologize for the error.

Many academics claim investing is a “random walk.” We believe this to be only partially true. It is our core belief that value investing can outperform the market, hence the name “ValueWalk.” Your number one source for breaking news and evergreen content on everything value investing and hedge funds.

Check out our new free Underrated Small Cap Stocks newsletter

Also Sign Up For Our Free Newsletter and receive in-depth ebooks on famous investors

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/apple-inc-aapl-stock-price-target-upped-for-services-offering/.

©2024 InvestorPlace Media, LLC