Apple and the Return of the Gimmicky Price Targets
- Joshua M Brown
- April 3rd, 2012
My price target for Apple ($AAPL) is $2275. I got there by looking at a telephone keypad and taking the digits from the A, A, P and L of the ticker symbol.
Mark Robertson at Manifest Investing shot me an email this morning and noted the parallels between the current Apple price target steeplechase and what went on with Qualcomm in 1999 – it got to a point where every day analysts were elbowing each other out of the way, jostling to be the high target on The Street. It didn’t end well for stock buyers, despite the fact that Qualcomm had a decade of growth ahead of it and a rock-solid business in the fast-growing wireless game.
Brian White was covering Apple for Ticonderoga, a brokerage that went under a few weeks back. Before the end of his firm, White’s price target on Apple was $666 (gimmicky? check!) He’s just joined a new firm, called Topeka Capital Markets and has decided to make a splashy entrance – his new Apple target, just a few weeks later, has magically become $1001 (get it, like Arabian Nights!). Now that’s how you get attention, every media outlet picked it up (which normally doesn’t happen for Topeka Capital Markets, I’m assuming).
This morning Gene Munster at Piper Jaffrey went for the gold. To recap, Munster has been bullish on Apple the whole way up, recommending a buy on every catalyst and every dip. he’s been right and people who’ve listened to him have made a lot of money. Today’s latest pronouncement from the analyst is (via Notable Calls):
Munster believes shares of AAPL will reach $1,000 in CY14, which would imply a roughly 1 trillion dollar market cap, the first in history. While some investors believe the biggest issue for AAPL to get to $1,000 is the market cap along with excessive investor exuberance, which Munster addresses in this note, he believes the real story is earnings growth. Fundamentally, he believes shares can reach $1,000 based on his belief Apple will continue to win in global mobile devices. As a result, Munster remains confident in his $80.18 CY15 estimate. A 12x multiple (stock’s current out year EPS multiple) on his CY15 EPS of $80.18 yields $960; however, this excludes an Apple Television, which the analyst believes could add more than $4 in EPS (5%) by CY15, which would yield over a $1,000 share price (12 * ~$84).
Now this is a perfectly reasonable thesis, of course, driven as it is by valuation, earnings expansion and the conquest of new markets. I should add that I’m long so I certainly hope he’s right. Munster is aware of the fear that Apple is over-owned and over-loved, but says the near-universally rosy sentiment has not yet translated into an obscene multiple. Okay, that’s fair.
But $1000 targets, “trillion dollar calls” and the like just smack of gimmickery. Maybe I’m too cynical and have seen too many goldilocks stocks get kneecapped just when the buy-recs-for-attention thing begins to roll.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.