The rally that propelled Apple's shares to a record has sparked debate over how much further the stock could rise, with most analysts expecting the gains to continue.
Apple's shares have come a long way in a short time. On Oct. 21, Apple (AAPL) stock closed at 204.92, besting the previous peak, set in December 2007. The next day it closed even higher, at 205.20. Almost exactly a year earlier, against the backdrop of a financial meltdown that torpedoed the wider market, Apple stock was trading at 91.49. An investor who purchased Apple then would have more than doubled his investment.
Wall Street analysts who track Apple say there's more room to run. After Apple's eye-popping Oct. 19 earnings report, most analysts fell over themselves to boost target prices, arguing in lengthy research notes that Apple's growth potential makes it worth anywhere from 225 to 280 per share. CNBC's Jim Cramer has even argued Apple could go to 300.
Of 41 analysts who track Apple, 35 rate the stock a "buy," "strong buy," or some equivalent, while four rate it a "hold." Only two rate Apple a "sell," arguing the company is overvalued.
While price targets may differ, many of the Apple bulls sing a familiar refrain. Sales of the iPhone will continue to increase as Apple introduces the device in more markets globally, while the Macintosh computer will keep gnawing away at Microsoft's (MSFT) command of the PC market. The expected introduction of a tablet will give the stock added lift, the argument runs.
Andrew Hargreaves of Pacific Crest Securities in Portland, Ore., expects Apple to trade at 260 in the next 12 months. He reached this price by estimating Apple's fiscal 2010 earnings before interest and taxes (EBIT) at $15.1 billion, multiplying that by 13, then adding Apple's net cash balance of $34 billion. Hargreaves says his estimate is conservative, given that Apple's stock has traded at levels with higher multiples. "I don't think I'm being overly aggressive," Hargreaves says. "I'm using a number at the low end of the historical range."
Brian Marshall of Broadpoint Amtech boosted his Apple target to 235 on Oct. 20 based on 20 times the $11.75 he expects Apple will report in pro-forma per-share earnings in calendar 2010. Samuel Wilson of JMP Securities arrived at a 220 target by estimating that Apple will earn $7.23 in calendar 2010 and then multiplying that figure by 30 before rounding it up a few dollars.
Even the biggest bulls concede Apple faces risks. Apple could fumble the launch of the tablet, expected next year. It has been a long time since an Apple product failed. The last example was the PowerMac G4 Cube, retired in 2001 after only 12 months on the market. One could argue the company is unlikely to keep producing one hit after another for so long, and that it's due to stumble soon.
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