Analysts Raise Apple’s Price Target Over Carriers, Beats, and More
Several more analysts recently raised their price targets on Apple (NASDAQ:AAPL) as the stock continues to climb this morning. First up is Wells Fargo analyst Maynard Um, who raised his “valuation range” on Apple shares to $595.00 to $640.00 from a previous range of $515 to $585, according to a note issued to investors on Friday. However, Um maintained a “Market Perform” rating on Apple and his overall investment thesis on the company remains unchanged.
Um justified raising his valuation range on Apple based on the company’s recent additions to its iPhone carrier portfolio. According to Um, Apple “seems to have gotten more aggressive in the last six months on a relative basis” after recently adding seven more iPhone carriers. The Wells Fargo analyst noted that Apple now has 323 iPhone carriers, up from the 316 it had last month. However, the increasing number of iPhone carriers becomes even more apparent when looking at the data from last year. Apple only had 280 iPhone carriers in October of 2013, according to data cited by Um. Apple’s increased number of carrier partners followed “a fairly stable 2011/2012” when the number of carriers did not change dramatically.
As noted by Um, this increase in the number of carriers is a double-edged sword for some aspects of Apple’s iPhone business, especially since many of the new carriers specialize in prepaid wireless services. “Apple iPhone units likely benefited from the large increase in carriers,” wrote Um. “Though ASP [average selling price] may have been affected by a skew to smaller or prepaid focused carriers.”
Although the addition of prepaid carriers will likely boost the sales of Apple’s lower end legacy devices, Um believes that the seasonal iPhone sell-in during the June quarter could offset the impact on ASP, while the company’s overall sales numbers will likely grow. Um also noted that “there aren’t many negative catalysts through the fall” when Apple is expected to unveil new iPhone models and possibly new product categories.
Despite his rosy picture of Apple’s near-term future, Um still believes that Apple will eventually need to choose between ASP/margin and units, since the analyst doesn’t believe the iPhone maker can maintain both. He also reiterated his investment thesis that focuses on concerns about gross margin pressure in the iPhone 6 cycle, limited market cap opportunity in existing product segments, and a shifting balance of power in the smartphone market that favors wireless operators.
Um issued a note earlier this week that expressed skepticism about the benefits that Apple could derive from its recently confirmed $3 billion acquisition of Beats Electronics. The Wells Fargo analyst described Beats as a “defensive” asset and noted that Apple should be acquiring “offensive assets” with an eye on the long-term future of its business. However, investors appear to have embraced Apple’s acquisition move and the stock has once again set a new one-year high of $643.99 in trading today.
Um wasn’t the only analyst to raise their price target on Apple on Friday, although the other analysts cited different reasons for their price target increases. Goldman Sachs raised its price target on Apple to $720 from $635, while Argus raised its price target to $700 from $610, according to MarketWatch. Both firms also maintained a “Buy” rating on Apple. Goldman Sachs cited upcoming product refreshes, as well as the possibility of new innovations such as automated home products, a mobile payments service, and a health monitoring wearable tech product. On the other hand, Argus cited Apple’s recent acquisition of Beats and noted that Beats Music will vastly improve the company’s overall music business.
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