Analyst: Investors Underappreciate Apple Stock

Apple (NASDAQ:AAPL) stock traded up as much as 2.3 percent in on Monday afternoon. Shares have climbed more than 10 percent since the company reported second-quarter earnings two weeks ago, and have once again broken above the 50-day moving average.

While critics suggest that the price action is simply a respite (some analysts maintain price targets as low as $360 per share, or 20 percent below Friday’s closing price), the consensus estimate is that the stock will see as much as 20 percent growth over the next year-long period. The reason, as Barclays analyst Ben Reitzes suggests in a note seen by StreetInsider, is that shares are currently underappreciated.

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The conversation surrounding Apple over the past few weeks — and particularly in the buildup to its second-quarter earnings — seemed to focus on two things: the product pipeline, and margins. The company has done nothing but dominate the tech market over the past decade, and that domination helped drive prices up to record highs last September.

Most investors knew that sooner or later margins would have to fall to more normal levels, but the road there — a 9.9 percentage point decline on the year in the second quarter — confused some investors and scared others. The most recent decline has prompted at least one downgrade on the stock and (combined with the new capital return program) has most investors rethinking how they value the company.

On Monday, Reitzes, the Barclays analyst, reiterated an Overweight rating on the stock and increased his price target from $465 to $525, slightly below the current mean analyst estimate but still pretty bullish. He is reportedly looking for a Mac event in June, and an iPhone or iPad event in September.

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What’s more, he thinks that margin estimates for the coming quarter are conservative. Apple guided gross margins in a range between 36 and 37 percent, which would be a decline from second-quarter margins of 37.5 percent. Some analysts expect that the results will land at the low end of that forecast.

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