Apple Shares Head for $700B Club, a Record U.S. Close

Apple (AAPL) shares may close at $700 billion in market cap today, which would make it the first stock in U.S. history ever to close at $700 billion or more, note the data experts at Dow Jones today.

Up $2.20, or 1.8%, at $121.92, the stock hit a new all-time high of $121.95 a short while ago.

If Apple closes above $120.18, it will hit the magic $700 billion.

Dow Jones data services notes Apple hit $700 billion for the first time on November 25th, and then again on November 28th, and last week.

Do the Math: Apple Adds Up to $150

It’s simple math: Shares of Apple Inc. are going to $150.

That’s the conclusion of Barclays analyst Ben Reitzes, who says in the wake of the company’s most recent earnings report that the implications of Apple’s cash flow alone put the stock at $150.

“We believe there hasn’t been enough attention paid to the extraordinary level of free cash flow – basically, how much money is coming in the door after subtracting capital expenditures – Apple generated in its most recent quarter, and what it means for future cash generation as well,” Mr. Reitzes wrote in a Monday note. He didn’t even include the virtually free money Apple raised in that Swiss franc bond deal (though he did say he expected the company to tap the debt markets “many more times” over the next few years).

Apple reported fiscal first-quarter earnings two weeks ago. Profits rose 38% year-over-year to a new record of $18 billion, and sales rose 30% to $74.6 billion. Apple’s earnings were so strong, in fact, that they almost single-handedly saved fourth-quarter earnings season for the S&P 500.

The company produced free cash flow of $30.5 billion in the quarter, which makes Mr. Reitzes’s own estimates look conservative, he said. The firm forecast free cash flow of $63 billion for all of 2015 and $66 billion for fiscal 2016. By those numbers, he said, Apple’s ratio of enterprise value to free cash flow is cheaper than almost any other company, “not just in tech.” Because of that, “we believe Apple’s shares can continue to nudge higher despite its large market cap.”

Mr. Reitzes isn’t alone in seeing Apple shares going higher. While the average analyst estimate puts the shares at $130 – not far from its current $121 – a good chunk of analysts see it around $150. Walter Piecyk at BTIG and Alex Gauna at JMP Secutiries also have $150 price targets. Chris Caso at Susquehanna Financial Group and Stephen Turner at Hilliard Lyons both have shares at $145. Brian White at Cantor Fitzgerald has a $160 target. Simon Tsoi at First Shanghai sees shares at $165.

There are complaints, of course. Apple relies too much on one product, the iPhone. While it’s true, it’s also true that the company has two new products that are worth keeping an eye on, its mobile wallet Apple Pay and its watch. And the iPhone’s epitaph has been written before.

Lastly, and just for fun, assuming Apple never did that 1-for-7 stock split, Mr. Reitzes’s $150 price target would put the shares at a cool $1,050.

Icahn Ups His Price Target on Apple to $240

Activist-investor Carl Icahn still thinks Apple Inc. is undervalued.

Months after he said that Apple’s stock could be worth $216 per share, he increased his price target on the stock by 11% to $240 Monday. That price is 84% above its $129.95 share price Monday morning, and puts him well ahead of even the most bullish Apple analysts on Wall Street.

In his latest missive to Apple Chief Executive Time Cook released Monday, Mr. Icahn noted his new price target and reiterated his call for the company to buy back shares at a faster rate.

“We appreciate that the Board just increased the share repurchase authorization by $50 billion, and that it continues to prioritize share repurchases over dividends (as it should),” Mr. Icahn wrote to Mr. Cook. He said that Apple need not choose between investing in growth and repurchasing shares, but can do both.

Increased share repurchases plus what he sees as Apple’s likely entrance into the television and auto markets could drive the stock price far above its current levels, Mr. Icahn wrote. “Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion, a view investors don’t appear to factor into their valuation at all.”

Mr. Icahn spent several paragraphs explaining how Apple could enter and change both markets. His discussions of the car market come days after the WSJ reported that Mr. Icahn had bet $100 million on the ride-sharing startup Lyft Inc.

Apple’s shares are up roughly 7% since Mr. Icahn put out his last price target of $216 per share in mid February. That call came one day after the iPad maker became the first U.S. company to close with a market capitalization above $700 billion.

His valuation of the stock puts him ahead of even the most aggressive tech analysts who track Apple. Cantor Fitzgerald analyst Brian White has the highest price target among analysts tracked by FactSet, with a $195 per-share price target. Daniel Ives of FBR Capital Markets ranks second at $185 per share. On Monday, Mr Ives reiterated that target, as he predicted that China will become Apple’s biggest market by revenue in two years.

Here's Why Carl Icahn Thinks Apple Will Surge to $240 per Share

Carl Icahn is out with a new letter to Tim Cook arguing that Apple should buy back more shares and that the stock is grossly undervalued. He says it should be worth $240/share. That's up dramatically from the $130.50 level it trades at today.

First, here's Icahn's core argument for why the stock could be worth that much:

After reflecting upon Apple’s tremendous success, we now believe Apple shares are worth $240 today. Apple is poised to enter and in our view dominate two new categories (the television next year and the automobile by 2020) with a combined addressable market of $2.2 trillion, a view investors don’t appear to factor into their valuation at all. We believe this may lead to a de facto short squeeze, as underweight actively managed mutual funds and hedge funds correct their misguided positions. To arrive at the value of $240 per share, we forecast FY2016 EPS of $12.00 (excluding net interest income), apply a P/E multiple of 18x, and then add $24.44 of net cash per share.


Here are the key points in the letter that make Icahn so optimistic about Apple

Icahn says Apple is poised to enter huge new markets:

"Considering our forecast for 30% EPS growth in FY 2017 and our belief Apple will soon enter two new markets (Television and the Automobile) with a combined addressable market size of $2.2 trillion, we think a multiple of 18x is a very conservative premium to that of the overall market."

Optimism over earnings is justified:

While our forecast for FY 2016 EPS is significantly above Wall Street consensus today, in October 2014 so was our original forecast for FY 2015 EPS, which is now in line with the Wall Street consensus. We are optimistic that ecosystem improvements (Apple Watch, Apple Pay, Homekit and Healthkit in particular) will drive modest growth in iPhone revenues next year, despite the difficult comparison that will result from iPhone’s tremendous performance this year

TV could be massive:

Excluding advertising, the addressable market for television is approximately $575 billion, which is larger than the smartphone market. Also, given that people spend an average of 12% of the day watching TV (equating to 25% of their free time), we view television’s role in the living room as a strategically compelling bolt-on to the Apple ecosystem.

And the car market will dwarf everything:

At $1.6 trillion, the enormous addressable market for new cars is approximately four times the size of the smartphone market.

And Apple is in a great position to do cars:

As a mobile device that is differentiated by design, brand, and consumer experience where software and services are increasingly critical, an Apple car would seem to be uniquely positioned.

In the meantime, the core business still has massive potential:

While the television and the car offer tremendous growth opportunities, Apple’s core ecosystem continues to improve and grow, now sometimes referred to as a “mega-ecosystem”, a term we find increasingly appropriate, as we look at the breadth of its components, which now include existing products (iPhone, Apple Watch, Mac, iPad, Beats, Apple TV), software/services (Apple Pay, Homekit, Healthkit, Carplay, iCloud, iTunes, and rumored Beats Music, pay TV service), as well as possible new products in new categories (a Car, a TV set).

Apple Inc. is expected* to report earnings on 07/21/2015 after market close. The report will be for the fiscal Quarter ...

Q2 '14 revenue: $17.982 billion (America) . . $10.941 billion (Europe) . . $9.835 billion (China) . . $4.047 billion (Japan) . . $2.841 billion (Asia Pacific)

Q2 '15 revenue: $21.316 billion (America) . . $12.204 billion (Europe) . . $16.823 billion (China) . . $3.457 billion (Japan) . . $4.210 billion (Asia Pacific)

Year over Year change: +19% (America) . . . . +12% (Europe) . . . . +71% (China) . . . . -15% (Japan) . . . . +48% (Asia Pacific)