Credit Suisse Sees 60% Upside in Apple Stock
While the bears seem to be running the show for Apple Inc. (NASDAQ:AAPL) stock, not everyone shares their view. For instance, one analyst is saying that Apple stock could go up to $150.00 per share.
Kulbinder Garcha, an analyst at Credit Suisse, maintained his “Outperform” rating on AAPL stock with a price target of $150.00. Given where the stock is trading at right now, that represents nearly 60% potential upside. (Source: “Analyst: I’m Keeping My $150 target on Apple Shares. Here’s Why,” CNBC, May 3, 2016.)
Since climbing above $132.00 last summer, Apple stock hasn’t really been a hot commodity. It bounced back several times, but each time the highs got lower. As the company reported its first year-over-year sales decline in more than a decade, all hell broke loose.
In just one trading session, $40.0 billion was wiped from Apple’s market cap. A week later, there doesn’t seem to be much recovery. Trading at $94.12 a share, AAPL stock is down more than 10% year-to-date. In the past 12 months, it has plunged 26.9%.
It doesn’t help the case when billionaire investor Carl Icahn announced that he has sold his entire position in Apple. It wasn’t too long ago that Icahn was extremely bullish on Apple stock, noting that buying it was a “no brainer.” (Source: “Icahn: We’re Out of Apple, and It’s China’s Fault,” CNBC, April 28, 2016.)
Last summer, Icahn said that “if Apple goes down, I’ll buy more of it.” (Source: “Carl Icahn: If Apple Goes Down, I’ll Buy More,” CNBC, June 24, 2015.) He even announced his plans to launch a super PAC to reform corporate taxes, so Apple could bring some of its giant cash pile back to the U.S. (Source: “Letter Discussing Desperately Needed Legislation,” CarlIcahn.com, October 21, 2015.)
But I guess things have changed now…
That’s why it’s kind of a surprise to see such a bullish call. Garcha argued that many of the bearish catalysts working against AAPL stock could be temporary.
The most obvious reason behind Apple stock’s downfall is the company’s slowing “iPhone” sales. To that, the analyst pointed out Apple’s biggest advantage in the smartphone business: brand loyalty.
Garcha said that at current price levels, Apple has a similar valuation with other device makers. However, “What is different about this business is very few companies have the retention that Apple has.” (Source: “Analyst: I’m Keeping My $150 target on Apple Shares. Here’s Why,” CNBC, May 3, 2016.)
More specifically, the analyst looked at the upgrade cycle and the retention rates. On average, iPhone users would replace their device in about 13 months. The neat thing is that 90%–95% of iPhone users would get another iPhone. With the latest iteration—the “iPhone 7”—expected to be released this September, another iPhone sales boom could be right around the corner.
Of course, China will continue to be a focus in the eyes of Apple stock investors. In the second quarter of Apple’s fiscal 2016, revenue from Greater China totaled $12.5 billion, falling second only to the Americas, and made up nearly a quarter of the company’s total revenue. However, that number showed a 26% year-over-year decline. (Source: “Apple Inc. Q2 2016 Unaudited Summary Data,” Apple Inc., April 26, 2016.)
Still, Apple had a good run in Greater China. A few years back, Apple’s revenue from the region was only a small fraction of what it is today. Given its success story in China, Apple might be able to replicate this success in other international markets.
The Bottom Line on AAPL Stock
In particular, if Apple can boost its retail presence in Brazil, India, and Russia, it could see substantial sales growth in those markets.
Garcha’s $150.00 price target is quite high, given the company’s current outlook. But trading at $94.12 per share and carrying a price-to-earnings multiple of 10X, it’s hard to deny the value in Apple stock.