Wall Street continues to weigh in on Apple stock (AAPL) – Get Report ahead of the company’s July 27 earnings day. This time, UBS published a preview in which the analyst raised his target price to reflect an upside opportunity of 15%, despite shares having already climbed 18% since the end of the first quarter.
The Apple Maven takes a closer look at the research shop’s bullish case and recaps consensus estimates with less than a week to go until Apple’s earnings day.
(Read more from the Apple Maven: AAPL After Hours: Why Apple Stock Rebounded Viciously)
The 15% upside argument
UBS analyst David Vogt now sees Apple stock climbing to $166 apiece, up from his previous estimate of $155. The bump in target happens ahead of a fiscal third quarter that he believes will be good for the iPhone and Mac, despite the widely anticipated component shortages.
One key reason for his bullishness, particularly on smartphone sales (roughly half of Apple’s revenues) are aggressive carrier promotions. Verizon, for example, offers the iPhone 11 for free with a new line and unlimited plan. AT&T’s iPhone 12 Pro Max can cost as little as $11 per month, after trade in.
UBS is probably a bit more optimistic than I am on the iPhone and the Mac this quarter. Regarding the former, I have highlighted recent third-party research that points at dismal iPhone shipment growth in the second calendar quarter: 1% year-over-year, according to Canalys. Still, I am encouraged by Apple’s ability to outperform at the higher end of the product spectrum.
On the Mac, I noticed that a yellow flag was raised last week. Research company IDC pointed at substantial deceleration in PC shipment growth in the second calendar quarter, after a strong year of performance driven by the stay-at-home trends. According to IDC, Apple performed below the peer group average, losing about 20 basis points of market share over 2020.
(Read more from the Apple Maven: iPhone 13 Could Push Apple Stock Even Higher)
What Wall Street says
As it stands now, consensus sales estimate of $72.8 billion for fiscal third quarter is nearly 22% higher year-over-year. Sequentially, the seasonal dropoff in sales is expected to be 19%, quite a bit more than the average 6% decline of the past three years – but still consistent with Apple’s high-level guidance.
On EPS, the $0.99 consensus is a respectable 53% higher than it was in the comparable quarter in 2020. This probably suggests margin expansion (I project four to five percentage points) along with a decline in share count that is consistent with Apple’s aggressive buyback program.
The price target increases keep coming for Apple stock ahead of earnings. Consensus is now $159 per share for an upside opportunity of 10%. What do you think of Wall Street’s average target?
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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 Amazon Maven)