Will $1,000 iPhone = $1 trillion value for Apple?
There may not be much mystery left about Apple’s big event on Tuesday. Details of what are expected to be called the iPhone 8, iPhone 8 Plus and iPhone X have been leaked. Wireless charging. A better camera. A bigger screen. And a much higher price.
But Wall Street is excited nonetheless. Apple’s stock rose 2% Monday morning, part of a broader market rally. Apple is up about 40% this year. The only stock in the Dow that’s done better is Boeing, with a 55% gain.
Apple is just 2% below the all-time high that it set earlier this month. The company’s market value is a staggering $835 billion. If the stock goes up 20% more, Apple will become the first public company worth $1 trillion.
Sure, CEO Tim Cook may face criticism if the company prices the highest-end version of the new iPhone at $1,000 or more, as rumored. Yet analysts think people will still be more than happy to shell out.
Wall Street forecasts that Apple’s sales in the quarter that ends in December will be up more than 10% from a year ago and that earnings per share will increase nearly 15%.
And for Apple’s next fiscal year, analysts think sales will rise 15% — to $261.6 billion. Wall Street is predicting that earnings will be up more than 20% next year.
Simply put, increased iPhone sales should boost demand for Apple’s Macs, revenue from Apple’s iTunes music store and App Store and potentially even iPads and Apple Watches — the proverbial iPhone halo effect.
Macquarie Research analyst Benjamin Schachter wrote in a report Monday that he is in the so-called “super-cycle camp” regarding the iPhone.
“We expect the next iPhone to include innovations that will be clearly visible, marketable, and useful for the mass-market globally.” he said in the report.
Despite these high hopes, Apple’s stock still trades at a reasonable valuation of less than 15 times earnings forecasts for next year.
That’s a discount to the broader market. The S&P 500 is valued at about 17 times estimates for 2018 earnings — and profits are only expected to increase 11% next year.
Apple is even cheaper if you exclude the iNormous amount of cash it has on its balance sheet: $261 billion. That makes up nearly a third of Apple’s overall market value.
Subtract that from the core (pardon the pun) Apple business, and Apple trades for a little more than 10 times earnings estimates for next year.
So even though there is a lot of pressure on Apple to deliver a phone that will eat into the market share of Samsung’s Galaxy line and others running on the Google/Alphabet Android operating system, the stock is still reasonably priced.
And investors seem pretty confident that Apple’s best days are still ahead.