Analysts Raise Apple Price Targets Amid Market Love for Beats
Apple’s (NASDAQ:AAPL) stock continued to climb on Thursday following the company’s confirmation of its deal to acquire Beats Electronics on Wednesday. While some analysts boosted their price targets before the acquisition deal was confirmed, other analysts are now racing to raise their underwater price targets. Apple’s press release revealed that the iPhone maker will acquire Beats for a total of $3 billion, including approximately $400 million that will vest over time. Beats co-founders Jimmy Iovine and Dr. Dre will also join Apple as part of the deal. Additional comments made by CEO Tim Cook in an interview with The New York Times suggested that the Beats co-founders were a crucial component of the deal and will play a key role in shaping Apple’s music content strategy. “These guys are really unique,” Cook told The New York Times.
Now that Apple has laid its acquisition cards on the table, several prominent analysts have boosted their price targets for the iPhone maker’s shares. First up is Piper Jaffray analyst Gene Munster, who boosted his price target on Apple shares to $732 from $640 in a note released on Wednesday. However, Munster cited the timing of upcoming product releases as the reasoning behind his Apple price target increase, rather than the recently confirmed Beats deal. It’s unclear if Munster has changed is original negative opinion of the Apple-Beats deal, although he remains bullish on Apple. Soon after the rumors of the acquisition first emerged earlier this month, Munster called it a “bad idea,” despite noting that Iovine would likely be an important asset for Apple’s overall content strategy.
UBS analyst Steven Milunovich is another analyst that recently boosted his price target on Apple shares. In a note to investors obtained by Apple Insider, Milunovich raised his price target on Apple to $700 from $625. In a note issued earlier this month, Milunovich took a positive perspective on the rumored Beats acquisition and presciently noted that Apple was likely looking to “complement its mediocre success with iTunes Radio,” reports Barron’s.
However, Milunovich cited the expected strong sales for the iPhone 6 as the primary reason for his recent Apple price target increase, rather than Apple’s acquisition of Beats. Apple’s next-generation iPhone is widely expected to be available in two larger screen sizes of 4.7 and 5.5 inches. Many analysts believe the larger-screen iPhones will drive an unusually high number of users to upgrade as well as attract new users that may have been waiting for a larger iPhone model.
Milunovich also suggested that the Worldwide Developers Conference that starts on June 2 may be another catalyst for Apple stock. “Investor sentiment has been somewhat apathetic as reflected by two-thirds of funds owning Apple being underweight,” wrote Milunovich in a note seen by Apple Insider. “That view may change starting next week.” Like many other analysts Milunovich also believes that there is a possibility that Apple will unveil the so-called iWatch later this year.
Milunovich’s price target increase follows several other price target changes from prominent analysts. Barclays analyst Ben Reitzes raised his price target on Apple to $655 from $590 on Wednesday based on “momentum” and the likely announcement of new product categories, reports Benzinga. “The key long-term question remains whether Apple can monetize its iTunes and App Store base further through offering payments services and other compelling web services,” wrote Reitzes in a note obtained by Benzinga. “We believe the company will enhance its services offerings this year, but it will be hard to create meaningful recurring revenue that expands its multiple beyond the mid to low teens.”
Bernstein Research analyst Toni Sacconaghi — who selected Apple as one of his top information technology hardware company picks at the start of 2014 — also boosted his Apple price target on Wednesday. According to Benzinga, Sacconaghi raised his price target to $700 from a previous level of $615. The Bernstein analyst cited several factors behind his price target increase, including an expected sales boost from a larger-screen iPhone 6, as well as a stabilized gross margin. Sacconaghi also noted that Apple may see some beneficial side effects from its upcoming seven-for-one stock split. While the split will not change Apple’s market value, Sacconaghi believes Apple shares could still see a benefit from the split by encouraging more trading from large funds and small investors alike.
Finally, R.W. Baird analyst William Power raised his price target on Apple shares to $665 from $620 and maintained an “Outperform” rating on Thursday, according to TheFlyOntheWall. Unlike many other analysts, Powers cited Apple’s acquisition of Beats as a direct reason for his price target increase. As noted by TheFlyOntheWall, Powers believes that the acquisition was a “low risk transaction” that will reenergize Apple’s music content strategy with a new subscription service and the addition of new talent such as Iovine.
Meanwhile, investors appeared to be embracing the largest acquisition in Apple’s history. The stock reached a new one-year high of $636.87 on Thursday and closed up 1.82 percent, or $11.37, at $635.38 after the first full day of trading following confirmation of the Beats deal.
Here’s how Apple traded today.
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