Friday, October 15, 2010

Apple Zooming to $500?

Hudson Squares Boosting of it's Apple (AAPL) price target to $500 this morning is all the rage. Clearly nobody was paying attention during the financial crisis when we reported back in 2009 a Minyanville.com article that predicted AAPL would hit $1,000 [Apple to $1,000?]. High price targets were ignored back then but now they are all the rage.

AAPL clearly remains cheap and getting to $500 doesn't seem beyond the realm of possibility especially in a strong market. As Barron's points out, at $500 AAPL becomes a $450B company. It will be difficult to grow from there, but history has shown that you should stay with companies until the momentum runs out not when they hit magical market caps. Like Microsoft (MSFT) in 2000. When the music stopped back then, it was time to abandon Mr. Softee. It's almost impossible to turn momentum once it stops mainly because the markets they dominate hit saturation points. Then once growth slows, multiples compress. Oddly though, AAPL hasn't seen expanding multiples despite blowout numbers.

For now AAPL has all the momentum so sit back, relax and continue holding the stock. Once the music stops though, sell immediately!

Barron's summary:
  • Hudson Square Research analyst Daniel Ernst.This morning, Ernst raised his price target for Apple (AAPL) to $500, from $300, while repeating his Buy rating. That’s the highest target for the stock among Street analysts tracked by Thomson First Call. He raised his FY 2011 EPS forecast to $17.67, from $16.67. At $500, the company would have a market cap of more than $450 billion.
  • Piper Jaffray analyst Gene Munster this morning writes that September quarter results are likely to be in with the Street, but were constrained by iPhone and iPad supply shortages worldwide. “We believe the printed numbers for iPhone and iPad are less relevant than usual given the lack of supply and we expect the company to address these supply shortages on the earnings conference call,” he writes. “Bottom line: we believe over the next three months, investors will become increasingly more optimistic that the Street revenue growth in FY11 of 26% y/y is conservative given the size of Apple’s addressable markets combined with the company’s relatively small market share.”
  • RBC analyst Mike Abramsky, on the other hand, thinks Apple will post a “big” Q4 beat; he’s now looking for revenue of $20.3 billion and profits of $4.48 a share, up from $19.7 billion and $4.15. HE sees the company selling 13.5 million iPhones in the quarter, with 5 million iPads, 3.7 million Macs and 9.4 million iPods. His FY 2011 forecast is now $19.27, up from $19.
  • UBS analyst Maynard Um expects a solid Q4, and adds that the company could surprise with stronger guidance than the Street is expecting.

Disclosure: Long AAPL

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