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Apple Stock: Barclays Increased Its Target Price

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Apple stock is trading 0.5% higher in pre-market today. Barclays (BCS) increased the company’s target price from $2017 to $224, according to a report from The Fly.

What can investors expect from Apple stock?

The report stated that Barclays analyst Tim Long is buoyed by better-than-expected demand for the iPhone 11. Long expects the “introduction of the bundle of hardware with Apple TV+” to add about $7.5 billion in services revenues during fiscal 2020. He reiterated an “equal weight” rating on Apple stock.

Apple TV+ will launch next month. All of the iPhone, iPad, Apple TV, and MacBook buyers after September 10 will get free one-year access to the streaming service. Notably, Apple TV+ costs $4.99 per month.

Apple released its new line-up of iPhone 11 smartphones. The initial demand increased analysts’ optimism. Several analysts have upgraded the stock or raised its target price due to strong supply chain indicators.

Currently, Apple stock is trading at $235.55.

Apple Services will be a key driver 

While Apple’s iPhone is the company’s flagship product, accounting for most of the company’s sales, the Services segment is the fastest-growing segment. Apple Services is the second-largest business segment and a high-margin segment.

The Services segment is a significant contributor to Apple’s revenues and bottom line. The segment is a key driver for Apple’s stock price. Notably, the Services business includes sales from the App Store, Apple Music, iCloud, Apple Arcade, Apple TV+, Apple Pay, Apple News, and others. The segment’s gross profit is 64%, which is significantly higher than the overall gross margin of around 38%.

Apple can afford to price iPhones and other hardware devices lower due to the strong growth expected in the Services segment. In the June quarter, the Services segment’s sales rose 13% compared to a 12% decline in the iPhone business. Apple Services clocked in $37.2 billion in sales during 2018. A huge portion of the sales came from licensing. According to Goldman Sachs, Apple earned $9 billion from Google in licensing fees last year.

The company has several subscription services that will ensure a solid stream of recurring revenues. Analysts, including Katy Huberty from Morgan Stanley, expect the Services business to generate $100 billion in sales by 2023.

Apple’s upcoming results will be critical for Apple investors

Apple will be reporting its fourth-quarter results on October 30. If the company beats analysts’ revenue and earnings estimates, the stock will move higher. Apple stock is already trading close to record highs. However, a strong quarter and encouraging guidance might push the stock higher.

Analysts expect Apple to report sales of $62.84 billion in the fourth quarter with earnings of $2.83. The upgrade cycle in China and the US is driving demand for the iPhone 11 line-up. The iPhone demand will likely be high for a few quarters. Apple will launch its 5G enabled smartphone in 2020. A good September quarter and an even better holiday quarter will likely compel analysts to raise their target prices.

Currently, analysts have a 12-month average target price of $230, which is lower than Apple’s current stock price. Apple has already gained close to 50% in 2019.

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