Lately, Wall Street analysts are taking a somewhat dour view on Apple Inc. (AAPL). The current consensus estimate for the quarter projects a 10.2% drop in revenues, followed by another 3.7% drop the quarter after. Yet, Main Street has shrugged this off and pushed Apple stock 17% higher since early February. So might this rally last?
Well, interestingly enough, Cowen analyst Timothy Arcuri thinks it can. In his most recent report, he upgraded Apple stock from “market perform” to “outperform” and upped the price target from $125 to $135.
Arcuri believes that the consensus estimates are too bearish — and that AAPL will be able to beat them. But he is also encouraged by the upcoming product line.
Apple Stock: Its Product Is Innovation
Apple’s product line expands further than the short-term, as well, thinks Arcuri, expecting “a new cycle of innovation” from the 2017 lineup. While the details are fuzzy, there is some intriguing buzz that can help provide a boost to Apple stock. Just some of the potential iPhone 7 features include a lightning port headphone jack, super thin form factor, water resistance and a dual lens camera. There’s also talk of a wireless charger.
As for Apple’s iPhone 7 Plus in 2017, the expectation is that Apple will move from the traditional LCD technology to OLED, a razor thin, energy-efficient (and also bendable) screen. According Arcuri, expect “dreamy” designs that should help spur plenty of upgrades.
Even before all this, Apple stock may still get some support because of the launch of the iPhone SE (it will ship tomorrow). The device looks like a regular 5s — with a 4-inch screen — but is packed with more power and features. (There’ s an A9 chip, which provides for high-end graphics and video, and the availability of Apple Pay as well.)
The $399 iPhone SE price tag is likely to attract customers — the cheapest price point for a new iPhone model.
OK, so why is this important?
For the most part, AAPL has continued see substantial demand for smaller iPhones (unit shipments came to 30 million last year). What’s more, the company appears to be making a big play for the lower-end of the markets in China and India. According to an analysis from Citigroup Inc (C), the company could gin up 20 million more shipments of iPhones if it can achieve the same market share in India as it does in China.
Finally, there is something else to consider: Apple stock is still fairly cheap. Based on the number crunching from Arcuri, the shares trade at a 25% to 30% discount to its large-cap tech peers.
The forward price-to-earnings multiple on Apple stock is a mere 11. By comparison, Microsoft Corporation (MSFT) trades at 18 times earnings, Alphabet Inc (GOOG, GOOGL) is at 19 and Facebook Inc (FB) sports a multiple of 28 times earnings. In fact, Apple stock sells at roughly the same multiple as the beleaguered International Business Machines Corp. (IBM)!
Given the potential catalysts from new iPhones and the attractive relative valuation, getting to Arcuri’s $135 price target really does not seem like much of a stretch.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
