J.P. Morgan tweaks AAPL target up to $300 on Apple Watch, AirPods strength

Posted:
in AAPL Investors edited January 2020
On the eve of Apple's crucial holiday quarter earnings, J.P. Morgan has slightly hiked its Apple stock target price to $300, but is warning about the "high bar of investor expectations."

All of the Apple Watch Series 5 case materials
All of the Apple Watch Series 5 case materials


In a note to investors seen by AppleInsider J.P. Morgan stock analyst Samik Chatterjee is expecting Apple to deliver a strong quarter primarily from better than expected Apple Watch and AirPods performance, with revenues at the high end of guidance. Where Apple has predicted between $85.5 billion and $89.5 billion for the quarter, Chatterjee is expecting to see $88.7 billion on the quarter.

Specifically, the iPhone is said to be $49.7 billion of that, with the the iPad and Mac both bringing in $7.3 billion each, Services earning $12.9 billion, and Wearables plus Home and Accessories drawing $11.6 billion. Gross margin is expected to be 38% overall, with Services gross margin by itself hitting $64.5%.

The hike to $300 per share of Apple stock, versus the $296 it set on December 20, is driven by a "strong ramp for wearables in the quarter." Chatterjee also says that he expects "continued progress on the Services transformation," predicting 18% growth from the year-ago quarter.

The hike is based on a very slight increase to the profit to earnings multiplier to 18.5x versus 18.4x, and no meaningful increase in the earnings per share.

But, Chatterjee still recommends caution, and a tempering of expectations somewhat, despite the currently lofty price of the stock.

"We continue to recommend shares of AAPL for long-term shareholders, with upside led by the re-rating of the shares from the Services transformation," writes Chatterjee "However, heading into the earnings announcement later this week we would be wary of the high bar of investor expectations."

For the second fiscal quarter, Chatterjee is predicting total revenues of $63.7 billion, with a gross margin of 37.9%. In the second quarter of fiscal year 2019, Apple had revenues of $58 billion.

In trading before the market opens on Monday, Apple stock is presently sitting at $311.50, down 2.1% over the weekend in a market impacted by Corona virus fears.

Other analysts are more optimistic about Apple stock pricing going forward. A note from Cannacord on January 15 also predicts strong "iPhone 12" sales on top of high demand for the iPhone 11. Canaccord sees sustained Services revenue momentum into the next year, pushing the multiple from 16x to 20x, and the price target from $275 to $355.

Jun Zhang from Rosenblatt is not as optimistic about the stock. On Friday morning, Zhang upped his share price from $150 to $250, but doesn't see strong Services results, nor is he expecting any dramatic movement from the "iPhone SE 2" nor the 5G iPhone 12.

Comments

  • Reply 1 of 9
    GeorgeBMacGeorgeBMac Posts: 11,421member
    It's not just Apple.   It's the whole market.  The markets have been highly correlated and driven by artificial stimuli such as QE, low rates and unfunded, unsustainable tax cuts.
    CNBC though refuted the allegation that these markets are a repeat of the 1990's (and we know how that ended!)

    "Equities are a bit expensive, you say? Sure, the S&P 500 is at its richest levels of this cycle, trading close to 22 times the past year’s earnings. At the peak in early 2000, it was at 30 times. The Nasdaq 100 — the heart of the market’s leadership both now and then — fetches 28-times trailing earnings now, compared to about 40 times two decades ago.

    The largest stock in the market today, Apple, is approaching 24-times forecast 2020 profits; the biggest stock in 1999, Microsoft, reached 60-times forward earnings at its peak."

    https://www.cnbc.com/2020/01/25/markets-valuation-and-speculative-activity-much-less-extreme-than-it-was-in-1999.html

    So, are the markets over-valued?  The answer is somewhere between "Probably" and "Definitely"
    But, are we to worry about late 90's style crash?   The answer is probably "Probably Not" -- at least not to that scale.



    edited January 2020
  • Reply 2 of 9
    Help me understand how an analyst says the price target is $300 when it reality it already trades for more than that? 
    wlym
  • Reply 3 of 9
    robertsm said:
    Help me understand how an analyst says the price target is $300 when it reality it already trades for more than that? 
    Because that analyst doesn't think the price will stay as high as it currently is and will come down closer to $300.
    chabig
  • Reply 4 of 9
    lkrupplkrupp Posts: 10,557member
    All this enthusiasm for AAPL? I think the analysts still hate the company but had to come up with an explanation for the meteoric rise of AAPL last year so they would appear to be relevant. Am I cynical about this? You betcha.
  • Reply 5 of 9
    The Coronavirus is throwing all of these projections into the dumpster. China is quickly grinding to a complete halt.
  • Reply 6 of 9
    GeorgeBMacGeorgeBMac Posts: 11,421member
    The Coronavirus is throwing all of these projections into the dumpster. China is quickly grinding to a complete halt.

    You have to give them credit -- they're doing it right.   They have entire cities quarateened, holidays extended, businesses telling staff to work from home, etc... in order to contain it.   I doubt that would happen here.
  • Reply 7 of 9
    The Coronavirus is throwing all of these projections into the dumpster. China is quickly grinding to a complete halt.

    You have to give them credit -- they're doing it right.   They have entire cities quarateened, holidays extended, businesses telling staff to work from home, etc... in order to contain it.   I doubt that would happen here.
    If people knew there was a 3% increased chance they were going die in the next two weeks I think they’d listen.
  • Reply 8 of 9
    GeorgeBMacGeorgeBMac Posts: 11,421member
    The Coronavirus is throwing all of these projections into the dumpster. China is quickly grinding to a complete halt.

    You have to give them credit -- they're doing it right.   They have entire cities quarateened, holidays extended, businesses telling staff to work from home, etc... in order to contain it.   I doubt that would happen here.
    If people knew there was a 3% increased chance they were going die in the next two weeks I think they’d listen.

    That's 3% of those who come down with it (mostly the elderly).   Worldwide less than 3,000 have contracted it.   But its obviously highly contagious.
  • Reply 9 of 9
    The Coronavirus is throwing all of these projections into the dumpster. China is quickly grinding to a complete halt.

    You have to give them credit -- they're doing it right.   They have entire cities quarateened, holidays extended, businesses telling staff to work from home, etc... in order to contain it.   I doubt that would happen here.
    If people knew there was a 3% increased chance they were going die in the next two weeks I think they’d listen.

    That's 3% of those who come down with it (mostly the elderly).   Worldwide less than 3,000 have contracted it.   But its obviously highly contagious.
    You have to keep in mind we still have things like Influenza that kills lots of people annually. This is in addition to that.
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