Wall Street analysts seem to agree, on average, that Apple stock is a strong buy. But around the consensus price target of $150 per share, estimates vary widely: from $83 at the bearish end to $175 at the bullish end of the spectrum.
What might justify Apple stock rising nearly 40% to reach the most optimistic of price targets? On the flip side, what are the key risks to Apple stock tanking about 30% towards the bottom of the well? These are questions that the Apple Maven will explore today.
iPhone super cycle
The Wall Street bulls in question are two: Wedbush’s Dan Ives and Evercore ISI’s Amit Daryanani. Although both see the same upside to investing in Apple shares today, the analysts approach the bullish case from different angles.
Wedbush places the iPhone at the center of the investment thesis. The analyst believes fervently in the 5G super cycle, arguing that just about 40% of Apple’s smartphone installed base is currently overdue for an upgrade. Greater China, a struggling geographic segment for the past five years, represents a sizable rebounding opportunity.
The research shop offers numbers to support the argument. Dan Ives sees Apple shipping as many as 250 million iPhone units in the current year, which is roughly 15% more than consensus. Holding all other variables constant, including average prices and margins, I estimate that 2021 iPhone sales at these levels could account for up to one-fourth of the stock price upside.
Wedbush looks beyond the current year, and sees in the upcoming iPhone 13 an important follow up to the “5G party”. Demand for the new device should be boosted by product features, including a 1 terabyte storage model, and the buildout of 5G networks across the globe.
Apple Car, services and wearables opportunities
Wedbush’s Dan Ives shares at least one thing in common with Evercore ISI’s Amit Daryanani: a belief that the long-awaited Apple Car could be a catalyst for further stock price appreciation.
Dan offers some figures to explain his bullishness. According to him, the EV (electric vehicle) market could reach $5 trillion over the next decade. Should Apple announce a production partner by the summer, as Wedbush believes will be the case, the Cupertino company could begin to capitalize on the opportunity soon.
Amit, on the other hand, dives deeper into another couple of high-growth businesses for Apple: services and wearables. The analyst sees “a clear path to $100 billion in services revenue by fiscal 2025 and $70 billion for wearables. The growth should help drive margin expansion and help smooth out the cyclical nature of the hardware business”.
Should these two segments expand as Evercore ISI believes they will, both combined would more than double in size in five years, with margin expansion potential. It is not a stretch to see Apple stock rising 40% in 12 months if the rest of the market begins to see these growth opportunities the same way.
This ship is going down!
Despite plenty of Wall Street love, Apple stock also has its bears. None is more pessimistic about investing in the Cupertino company’s shares than Goldman Sachs’ Rod Hall, who believes that the stock has over 30% downside risk.
At the core of the analyst’s bearish thesis is the services segment. Rod argues that a post-pandemic world could be highly disruptive to service revenues, as consumers choose offscreen entertainment after nearly 18 months of being confined at home.
Still within services, Goldman believes that Apple TV+ could see users flock as the one-year free trial period ends, in July 2021. This would be a blow to a company that is still trying to become a more relevant player in the ultra-competitive streaming video space.
Lastly, the analyst believes that the iPhone 12 resembles a “redesign cycle” rather than a more meaningful “5G super cycle”. As a result, iPhone replacement rates should be low in 2021, and average selling prices could drop as well.
Not long ago, I asked users on Twitter if they were concerned about the downside risk in Apple stock. Now, I turn the question around: what key driver could send shares towards the $175 bullish price target? Below are the answers.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)