Munster Optimistic on Apple Stock, Not So Much on Apple TV

Source: Thinkstock

Source: Thinkstock

Piper Jaffray analyst Gene Munster has said in his latest research note, seen by Wall St. Cheat Sheet, that the firm is bullish on Apple (NASDAQ:AAPL) due to “the low expectations” for the company’s new products, including an iPhone 6 and the rumored iWatch. The firm believes that the stock will likely either remain steady if the products are as unimpressive as expected or rally on unexpectedly good products. Munster also said he believes the company will announce an increased dividend or a share repurchase when earnings for the first quarter of 2014 are announced on April 23. The firm’s price target for the stock is $640.

While Munster is optimistic on Apple, he noted that he is not as optimistic as the Street. Munster believes that Apple will report first quarter revenue toward the high end of its own forecasts, around $44 billion. While he agrees with the Street in that respect, saying the average estimate of $43.5 billion sounds right to him, he did say that the expectations for June are too high, with the Street expecting a 10 percent growth year-over-year in June while Munster is only forecasting a 5 percent growth.

The well-respected analyst also made some predictions about Apple’s upcoming products. As for the iPhone 6, Munster agrees with prominent rumors that the device will have a larger screen than the current iPhone generation as bigger smartphones have become increasingly popular. Munster said he believes the larger screen will be the “key selling point for the new device” although he didn’t comment on rumors that Apple plans to make the iPhone 6 in two different sizes.

Munster also noted that he doesn’t think a larger iPhone will cannibalize sales of the iPad mini, given that the screen sizes are estimated will be a full two inches in difference which Munster believes is big enough to warrant a customer purchasing both an iPhone 6 and an iPad mini. He did note that someone who purchases an iPhone 6 would probably be more likely to opt for an iPad Air rather than the smaller mini, but he doesn’t believe the larger iPhone will have a negative effect on Apple’s bottom line. The firm expects Apple to release the new iPhone sometime in September.

Brand new product categories that are expected in 2014 include Apple’s entrance into wearable tech with the iWatch and a revamped Apple TV product. The analyst said that there have been enough reports coming from supply chains about the iWatch to reasonably expect a debut of the product sometime in the second half of the year. He also predicted that such wearables will eventually cannibalize smartphones, although that time is still in the distant future.

“We expect wearables to ultimately supplant how we think of smartphones today for communication and light content consumption. We believe we could move to a wearable plus tablet lifestyle where consumers use tablets to perform tasks beyond simple communication/short video watching/social/news,” Munster says in the note.

He’s not so optimistic about the Apple TV, though, as information from supply chains has slowly trickled off. “We still view a launch of the TV in 2014 as likely, but note that each month that passes without credible feedback from the supply chain reduces our confidence,” he said. Given rumors about Apple’s reported talks with Comcast (NASDAQ:CMCSA) and other media companies, Munster thinks an improved set-top box with increased media options is more likely than an Apple television set.

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