Apple has had a spectacular year, with the stock up 77%, increasing its valuation by more than $900 billion. The company, now worth $2.2 trillion, is inching closer to a new high. This year it launched not only new iPhones, but also new Macs, new Apple Watches, new headphones (AirPods Max), and new services (Fitness+).
And there should be more good news to come in 2021, both for the company and the stock.
So says Citigroup analyst Jim Suva, who Friday morning took a fresh look at Apple shares (AAPL) and reiterated his Buy rating, lifting his target price to $150 from $125. (The stock is now a tad above his old target.) He offers up a list of five reasons Apple shares can still trade higher in the year ahead.
“Our estimate revisions are predicated on stronger-than-anticipated demand across several products including iPhones, Wearables and PCs/Tablets,” Suva writes. “While December quarter demand is constrained by supply, we believe stronger-for-longer demand for Apple’s products prevails through fiscal year 2021 as the economy recovers.”
He concedes that “some new risks have emerged, namely the Apple and Google exclusive search agreement, app store 30% take rate, and mega cap legislative scrutiny,” but he doesn’t believe any of those will materialize in 2021, creating “headline risk rather than fundamental risk.”
Forthwith, Suva’s list of five reasons to stay bullish on Apple:
- Many Apple products are already sold out for the holiday season. “Supply constraints may limit December quarter upside but if demand continues, the March quarter should be stronger than normal,” he writes. The list of sold-out products includes the iPhone 12 Pro and Pro Max; iPad, iPad Pro, iPad Air, and iPad Mini; MacBook Air and Pro; iMac and iMac Pro; and HomePod mini. You can’t get any of them in time for the holidays.
- India manufacturing production is coming online. That will help Apple avoid a 30% import tariff and make Apple product pricing more competitive in the world’s No. 2 market for mobile phones after China. He notes that Apple has less than a 2% mobile phone market share in India, compared with 10% in China and 45% in North America. He also notes that there are currently no Apple stores in India. If Apple can reach 10% of the India market, he says, it would boost revenue by $4 billion a year.
- Apple has become a platform that reaches beyond products and software. “Apple has evolved from a product company to a platform company that includes services such as software, storage, messaging. apps, advertising, music, TV and video content, digital payments, fitness, games, and many more,” Suva writes. “Looking ahead we believe Apple will not only continue to grow its services business but also get increased traction with the enterprise.” He points to opportunities in health care, architectural design, retail, and supply-chain companies.
- Apple is moving into health care, with Apple Watch applications “starting to be embraced by health insurance companies,” he notes.
- He also says there is the misperception that Apple’s top line isn’t growing, and that earnings per share is disproportionately boosted by stock buybacks. ”On a regular basis we get investor pushback that Apple doesn’t grow. This pushback is both on sales as well as EPS,” he writes. “Furthermore the rebuttal by investors for EPS growth is the claim that most EPS growth is drive by stock buy backs. This is factually inaccurate.”
Apple stock is off 1%, at $127.40, in recent trading. The S&P 500 is down 0.6%.
Write to Eric J. Savitz at [email protected]