BMO Capital Raises Apple’s Price Target and EPS Estimates

Source: Thinkstock

Source: Thinkstock

Apple’s (NASDAQ:AAPL) attractive valuation and potential for new revenue streams continues to drive bullish analysts to revise their earnings estimates and price targets on the Cupertino-based company’s shares. In a recent note to investors, BMO Capital analyst Keith Bachman raised his price target on Apple shares to $565 from $560 and reiterated an “Outperform” rating.

“We continue to believe that AAPL’s valuation is attractive relative to historical measures as well as relative to the S&P 500,” wrote Bachman in a research note obtained by The Economic Daily. “Based on changes in the multiple, we believe that the upside case is in the $635 range and the downside case is in the $470 range. We are raising our March quarter EPS estimate to $10.23 from $10.16 (consensus of $10.14).”

The BMO Capital analyst cited Apple’s accelerated share buyback program as the primary reason for raising its earnings-per-share estimates. In February, Apple CEO Tim Cook revealed in an interview with The Wall Street Journal that the company had repurchased $14 billion of its own shares soon after it announced its fiscal first quarter earnings. “We are raising our EPS estimates on Apple, driven by aggressive share buybacks,” wrote Bachman according to The Economic Daily. “Apple repurchased approximately $14 billion worth of stock, and we assume that the share count declines by around 22 million, to 880 million shares in the March quarter. In addition, we assume total share buybacks of about $35 billion in FY2014 and FY2015, compared with $40 billion over the past 12 months.”

According to StreetInsider, the firm also boosted its fiscal year 2014 EPS estimate to $41.59 from $41.36, while EPS estimates for fiscal year 2015 were similarly raised to $45.15 from $44.55. However, it should be noted that BMO Capital’s EPS estimates for fiscal year 2014 and fiscal year 2015 are still lower than consensus EPS estimates of $42.75 and $46.54, respectively. The firm also noted that revenue estimates for the current quarter are too high. BMO Capital forecast revenue of $36.6 billion for the June quarter, compared to the consensus revenue estimate of $38.6 billion.

BMO Capital also cited three primary catalysts that will help to drive Apple’s long-term growth. As noted by StreetInsider, the firm cited a large-screen iPhone, a new wearable tech product category, and new services — including the possibility of a mobile payments service. Unconfirmed rumors reported by various media outlets have suggested that all three of these catalysts are real possibilities.

Earlier this year, The Wall Street Journal reported that one of the upcoming iPhone models will feature a screen size larger than 4.5 inches and that the other will have a phablet-sized screen larger than 5 inches. Meanwhile, rumors regarding a so-called “iWatch” have also been reported by various media outlets, including 9to5Mac. Finally, The Wall Street Journal cited insider sources earlier this year that suggested Apple was laying the groundwork for a mobile payments service that would compete with rival services offered by companies like Google (NASDAQ:GOOG) and eBay (NASDAQ:EBAY).

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