Similar to Steve Milunovich from UBS and Toni Sacconaghi at Bernstein last week along with Andrew Uerkwitz at Oppenheimer and Walter Piecyk at BTIG earlier this week Katy Huberty at
As I mentioned in my November 19 note that Apple’s shares are in overbought territory as reports come in that Apple is doing well in the quarter, especially the iPhone 6 and 6 Plus, sell-side analysts will increase their forecasts and target prices. One of the reasons is the continued longer lead-times the iPhone 6 and 6 Plus are experiencing vs. previous iPhone launches and the greater number of countries it is available.
Huberty is raising her target due to Apple’s Watch
Huberty published a note on Wednesday morning that the top 100 investment institutions were underweight ownership of Apple’s shares as of the end of September compared to the company's weighting in the S&P 500 Index but she did not increase what had been a $115 target price.
She subsequently published a note late yesterday based on her global AlphaWise survey results in conjunction with a broader Morgan Stanley report on the ‘Internet of Things’ that investors could be underestimating demand for Apple’s Watch. Huberty believes that buy-side analysts are being conservative (which I believe they should be due to the early stages of this new segment) by estimating Apple will sell 10-20 million in calendar 2015.
Her survey is showing that the company could sell 30 million or 10% of the compatible iPhone user base (iPhone 5 and later models which she estimates will be 315 million), which is what she is using in her projections. I would agree with the buy-side analysts since we only know the lowest Watch cost will be $349 and it is more of a discretionary item vs. must have.
Huberty expects wearables to be the fastest ramping consumer device in history. Her base case is for 530 million units, not just Apple’s, to be sold in 2020 and 1 billion in the bull case. The chart below outlines the purchase intentions of US consumers for Apple’s iPhone, iPad and Watch when they were launched. Additionally, purchase intention for the Watch in all countries excluding China is 7% “definitely buy” and 19% “probably buy” and including China, it is 9% and 23%.
She is raising her calendar year 2015 EPS estimate from $8.20 to $8.40 and increasing her PE multiple assumption from 14x to 15x. This takes her target price from $115 to $126.
Munster increased his target price due to iPhone demand extending into the March quarter
Munster has been tracking iPhone 6 and 6 Plus lead-times on Apple’s websites similar to what I have been doing since they could be ordered back in September. Based on the iPhone 6 and 6 Plus still having 7-10 business days and 3-4 week lead-times, respectively, he is estimating that Apple will sell 61 million iPhones in the December quarter and 53.5 million in the March quarter.
He tracks the availability of 12 iPhone 6 and 6 Plus models in 80 Apple retail stores. His checks show that the percentage of SKUs (Stock Keeping Units) that could be immediately bought in a store went from 6% in mid-October to 58% as of Thursday, November 14.
Munster has raised his PE multiple assumption as part of his target price increase. He has gone from a 16x to 18x multiple on his calendar 2015 EPS estimate of $7.48 which takes his target price from $120 to $135. It is interesting to see the different metrics (EPS and PE multiple) that Munster and Huberty use to come up with fairly similar target prices ($135 vs. $126).
I would note that Munster’s fiscal 2015 EPS estimate is $7.42, which is a good amount below the Street’s estimate of $7.71 and Huberty’s $7.89. His fiscal 2015 revenue estimate of $208.4 billion is slightly below the Street’s $210.5 billion. His gross margin assumption is 38.0% for the year vs. Huberty’s 39.1%.
