Apple Inc. Is a Buy Thanks to iPhone 7’s Sudden Sex Appeal (AAPL)

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Apparently, news of the death of Apple Inc.’s (NASDAQ:AAPL) iPhone were premature. Indeed, better-than-expected sales of the gadget led two analysts to raise their price targets Tuesday.

Unanticipated demand for the less-than-exciting iPhone 7 led a couple of analysts to weigh in with higher target prices as a result.

From Stifel Nicolaus:

“We are increasing our F4Q16 revenue and EPS estimates from $45.6B/$1.57 to $47.7B/$1.69 (street: $46.9B/$1.66), which now reflects iPhone shipments of 47.0 million vs. our prior 42.2 million estimate (street: 44.6M; 40.0-46.2M range) […] We adjust our F1Q17 (Dec ’16) estimates from $70.5B/$3.01 to $74.3B/$3.17 (street: $74.4B/$3.19) with iPhone shipments now estimated at 76.6M vs. our previously noted conservative estimate of 69.9 million (street: 75.4B). It is important to consider the extra (14th) week included in the December quarter – extra week ending on New Year’s Eve, which in the past has been highlighted as a good sell-thru week for Apple.”

Stifel analyst Aaron Rakers already had a “Buy” rating on Apple stock. Now he’s lifted his price target as well — to $130 from $120 a share. That gives AAPL implied upside of 10% in the next 12 months or so.

Over at Deutsche Bank, analyst Sherri Scribner affirmed her “Hold” call after hiking her target price on Apple stock to $108 from $105. That’s curious because the price target is below the current level of Apple stock. Ordinarily that would equate to a “Sell” rating. Regardless, the analyst raised her iPhone sales forecasts for last month and December.

Apple Stock Has More to Give

So what to make of AAPL stock? The forward price-to-earnings multiple has creeped up this year thanks to the stock’s 12% gain so far this year.

AAPL stock gets little premium for growth now that iPhone sales have cooled off. After all, Apple IS iPhone and the market for smartphones is pretty mature, especially in the developed world. Making matters worse, existing iPhone users are hanging on to their older models for longer periods of time, which hurts the upgrade cycle. As a result, Apple stock fetches just 13 times forward earnings.

With a compound annual growth forecast of 8% for the next half decade, shares look to be pretty fairly priced. But only if iPhone sales projections are spot on, and now it looks like they will actually be better-than-expected.

That could mean there’s still some incremental upside for Apple stock. That’s not a bad bet if more analysts revise their models upward. There’s a reason why a poll by Thomson Reuters finds that 41 out of 49 analysts call Apple stock call it a “Buy.”

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/10/apple-inc-aapl-stock-buy-iphone-7/.

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