Analysts’ love for Apple (AAPL) is increasing by the day. Yesterday, Bank of America and Evercore ISI raised their price targets on the stock, according to CNBC. BofAML (Bank of America Merrill Lynch) analyst Wamsi Mohan hiked his price target on Apple stock to $270–$290.
Meanwhile, Evercore ISI’s Amit Daryanani boosted his price estimate from $275 to $305. These new price targets indicate a potential upside in the range of 7%–13% from its current levels. Mohan placed a “buy” rating on the stock, while Daryanani had an “outperform” rating on the stock. Both analysts had varying reasons for their bullish calls on Apple. However, the company’s Services and Wearables segments were common ground when it came to analyst optimism.
Bank of America optimistic about 5G iPhone and low-cost wearables
Mohan is particularly upbeat about Apple’s 5G adoption in 2020. He expects the company to sell over 200 million iPhones between 2020 and 2022, according to The Street. MarketWatch further indicated that in 2020, the analyst expects iPhone shipments to be 20 million. According to analysts, by 2024, 70% of iPhones will be 5G compatible. Mohan also stated that the 5G cycle “could be smoother with lower peaks and troughs.”
WCCFtech cited another report from Bank of America yesterday. Analyst Tal Liani forecast that Qualcomm (QCOM) could earn an additional $4 billion in revenue from Apple by fiscal 2022. Qualcomm is the 5G modem supplier for the iPhone maker.
Mohan also cited low-cost wearables to support sustained sales growth for Apple. About the products, he said they’re “attractively priced to support adoption,” as per The Street. The analyst specifically mentioned AirPods at $169 and the Apple Watch at $200 in this regard.
Apple could see double-digit growth in its Services segment revenue. In the fourth quarter of fiscal 2019, the company saw an expansion of its gross margin due to Services growth. Mohan expects to see the same in the future and believes it will affect the stock favorably. For the hardware segment, Mohan foresees low- to mid-single-digit growth as “reasonable.” To sum up his recommendation, the analyst said, “Multi-year iPhone visibility and stability, combined with continued double-digit Services revenue growth, should drive the multiple higher, in our opinion,” according to MarketWatch.
Evercore ISI upbeat about wearables and iPhone 11
Evercore’s Daryanani has high hopes for Apple’s Wearables and Services segments. He indicated that both these segments would boost revenue even if other “product lines fail to grow,” stated MarketWatch. Overall, the analyst expects revenue growth to be 6% in fiscal 2020.
Daryanani’s research note cited Adobe’s estimate about AirPod’s Black Friday sales. Adobe, a leading e-commerce software provider, released the Thanksgiving weekend sales figure on December 2, wherein it mentioned AirPods as the top seller. Daniel Ives, a Wedbush analyst, has a similar opinion, as indicated by 9to5Mac earlier this month. Ives expects Apple to have sold over 3 million pairs of AirPods and AirPods Pro in the Black Friday–Cyber Monday phase.
Last week, Citigroup analyst Jim Suva also raised his price target on Apple stock to $300 from $250 amid optimism over holiday season sales. Due to a sudden upsurge in demand for AirPods in the festive season, there could be a shortage. Therefore, Apple has asked China to double its AirPods Pro production.
The Evercore ISI analyst also sees robust demand for the affordable iPhone 11, particularly in China. In his research note, Daryanani wrote, “In addition, the iPhone 11 will outperform relatively low expectations as the lower price has been particularly well received in China.” He added, “Also, we think the uptick in carrier promotions could bolster performance in Americas.”
Apple stock muted ahead of the next round of tariffs
We now know that Wearables and Services are Apple’s treasure trove. However, Apple doesn’t want to put iPhones on the backburner either. Therefore, it’s now changing its iPhone strategy. There’s a lot of hype over the number of iPhones Apple will release over the next two years. 5G is crucial for Apple at this point in time, and in countries such as China, just the iPhone 11 won’t be enough. Black Friday sales for Apple’s wearables were encouraging. Thus we have a solid reason to believe the holiday season will be better.
However, the next round of tariffs on December 15 over a new batch of Chinese goods is a threat to Apple. Even Mohan indicated that these tariffs could “disadvantage Apple against Samsung.”
Interestingly, Apple stock didn’t react to the two price target hikes yesterday. It was trading in the positive territory but remained muted ahead of the December 15 tariffs.
AAPL closed at $270.77 on December 11. It’ll be interesting to see the outcome of the next batch of tariffs on the iPhone maker.