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Why Apple Shares Remain a Bargain Despite Reaching New Highs

Apple already received three price target increases last week. Rob Cihra at Evercore was first to step up, raising his target by 15% to $115 from $100. This was followed by 30% increase by Walter Piecyk at BTIG, upping his target from $86 to $112. William Power at Baird followed with a 7% increase to $102 from $95.

With Apple's median price target now at $102 and an average target of $101.49, it begs the question whether Hargreaves is even bullish at all. He noted that Apple's upside may be limited "unless the tech company innovates a new product or service." Again, there's nothing new here.

What I think is more important to consider, though, is how quickly Apple has changed the perception that it's become a slow-growth company. Apple's renaissance, which began six months ago, was affirmed when the company's margins maintained its healthy 38.5% level. It was at that point, analysts began upping their price targets.

What's more, these target increases didn't even take into account potential demand from the upcoming iWatch and other potential device categories. Assuming Apple can get 30% of its iPhone users buy an iWatch, the company can generate roughly $6 to $10 billion in long-term Ebitda. This assumes it can achieve gross margin of 45% to 50%, which is conservative.

But no matter how you slice it, with $101.49 now the average price target of two dozen brokers that cover the company, Apple at $95.97 is still a no-brainer buy.

At the time of publication, the author was long AAPL.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate APPLE INC (AAPL) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AAPL's revenue growth has slightly outpaced the industry average of 2.2%. Since the same quarter one year prior, revenues slightly increased by 4.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although AAPL's debt-to-equity ratio of 0.14 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.32, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • 43.45% is the gross profit margin for APPLE INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 22.39% is above that of the industry average.
  • Net operating cash flow has slightly increased to $13,538.00 million or 8.26% when compared to the same quarter last year. In addition, APPLE INC has also modestly surpassed the industry average cash flow growth rate of 5.28%.
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