Goldman Sachs analyst Simona Jankowski makes no bones about it — she thinks Apple Inc. (AAPL) is underestimated, and believes Apple stock is undervalued. Jankowski further feels the upcoming earnings report will validate her stance on AAPL.
That opinion on Apple was reiterated on Tuesday, when Goldman Sachs updated its outlook for the consumer technology company, reiterating its “Buy” rating and target price of $155 for Apple stock, but further fleshing out its rationale.
Long story made short, Jankowski thinks demand for the upcoming iPhone 7 may be even stronger than most realize, and that the company’s numbers in the meantime will also be better than most expect.
Full Steam Ahead for Apple Stock
Jankowski expects big things from Apple when it reports its Q2 numbers on April 25th. Namely, she expects earnings of $2.17 per share of AAPL on revenue of $54.4 billion. For perspective, the current consensus numbers only call for a bottom line of $2 per share of Apple stock and a top line of $52 billion.
Yes, iPhones are expected to do most of that heavy lifting. Jankowski has modeled for sales of 53.6 million iPhones, versus a consensus of 50 million unites of the popular smartphone.
For perspective, none of the numbers are projected to top year-ago results, when Apple earned $2.33 per share on $58 billion worth of revenue … when sales of the still-fresh iPhone 6 helped total iPhone sales reach 61.1 million units.
Such results this time around would be impressive, given the likely upcoming launch of the iPhone 7 (this close to the release of a new device, many iPhone fans are simply inclined to wait for the newer version) and the fact that it sold 74.8 million iPhones in the previous quarter; one could argue that anybody who wanted an iPhone 6 or iPhone 6s would already have one.
Goldman Sachs’ outlook for Q3 ending in June — still well before the launch of the iPhone 7 — is similarly more optimistic than the consensus, mostly indicating stronger sustained adoption of the iPhone than believed likely.
And yet, the crux of the newest take on Apple stock from Goldman Sachs wasn’t the strong numbers foreseen for the next couple of quarterly reports, but rather, expectations for the iPhone 7.
Jankowski’s research indicates 44% of the respondents to her online poll said they plan on buying an iPhone 7. Impressively, roughly a third of those buyers planning on owning an iPhone 7 currently own and iPhone that’s less than a year old, pointing to a replacement cycle that’s moving faster than some anticipated.
That same poll suggests 24% of those surveyed would be switching from a non-iOS device, which is impressive in itself.
Flawed Logic?
The near-term as well as long-term outlook bode well for Apple stock, though investors would be wise to not blindly place all their faith in Jankowski’s ad-hoc iPhone 7 poll — it may be flawed.
Selection bias is the tendency for subjects in a survey or poll to only participate in that poll or survey if they have an interest in the subject of the poll. In other words, it’s distinctly possible that only current or planned owners of iPhones chose to participate in the survey, while disinterested smartphone users — or those who intend to stick with an Android or Windows smartphone — chose not to participate, or abandoned the survey before completion.
It’s also possible (given the nature of the poll-taking and the likelihood that the Apple fans willing to finish the survey are also the ones excited enough to upgrade their device at every opportunity) that her sample over-represents the number of short-cycle upgraders.
In other words, Goldman Sachs’ survey may not be scientific, and may not be accurate.
It’s also worth noting, less than a month ago the suppliers of iPhone components were posting weak outlooks, suggesting demand for the iPhone wasn’t robust.
Still, the broad point is well taken … Apple remains able to create quite the buzz for its products.
Bottom Line for Apple Stock
The timeframe for Goldman’s $155 target price on AAPL wasn’t clear, but presumably, the investment bank would expect the stock to reach that price in a future that’s considered more long-term than short-term; that target is 38% above the stock’s current price.
It’s not an unrealistic target, however. At a price of $155 per share, AAPL would still only be valued at 15.1 times next fiscal year’s projected earnings of $9.99 per share. The company also has a habit of topping expectations, so it may not even need to test price-to-earnings ratios in the 15 area.
Whatever the case, Goldman Sachs analyst Simona Jankowski is right about one thing — Apple stock is a better investment than the vast majority of other opportunities, even if saturation headwinds are starting to blow.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
