The morning of Wednesday, July 14, was quiet in the equity markets. The Nasdaq, S&P 500 and Dow indices kept trading around flat. But Apple stock (AAPL) - Get Apple Inc. (AAPL) Report, accounting for 11% of the former, saw its price move with much more purpose: up 2% by noon.
Fueling the strong rally that has been forming since the start of June was a barrage of positive research notes from Wall Street analysts. The Apple Maven looks at some of the key takeaways from these experts.
(Read more from the Amazon Maven: Apple Stock Surges, What Next?)
Estimates continue to rise
Maybe the most vocal of analysts was Citi’s Jim Suva. Although he maintained a price target of $170 per share, which suggests only 14% upside from current levels, his read on Apple’s fiscal 2021 results was highly positive, despite supply chain challenges that could shave revenues by $3 to $4 billion.
Citi has increased its fiscal third quarter and full year earnings estimates. Driving the revision were several products, from smartphone to wearables and even AirTags, underscoring the importance of the entire ecosystem. Jim Suva even sees “strong end-market demand for PCs”, maybe contradicting recent data that points at growth deceleration in Mac.
At Citi’s 2021 EPS target of $5.33, AAPL trades at a current-year P/E (price-earnings ratio) of 28 times that, I would argue, is neither overstretched nor depressed. Worth noting, consensus EPS for the current year continues to rise. It has increased by 16% compared to 90 days ago (see table below), at a similar pace to stock price increase – effectively keeping valuation multiples stable.
(Read more from the Amazon Maven: Apple Earnings Preview: A Yellow Flag Has Been Raised)
Other bullish comments
Other analysts chimed in on Wednesday as well. Wedbush’s Dan Ives, a vocal AAPL bull, made a case for cybersecurity that may not impact Apple as much as it does stocks like Palo Alto Networks (PANW) - Get Palo Alto Networks, Inc. Report. Still, he reemphasized Apple as his “top large cap stock” on the back of the upcoming iPhone 13 cycle.
JPMorgan saw both an increase in iPhone 12 production and continued strength in Mac sales. Not unlike Wedbush, the firm also believes that iPhone 13 demand has been underappreciated and understated, which could be a source of further share price upside in the second half of the year.
What concerns the Apple Maven
I believe that the bullish views above make sense, and that they are generally aligned with data and information that the Apple Maven has come across lately – with the extent of the strength in Mac being subject to debate. Fundamentally, Apple seems to be in a great place.
It concerns me a bit that Wall Street enthusiasm seems to be gathering speed after the stock rallied 20% since the start of June alone. This is not to say that AAPL is ripe for a pullback. But history tells us that, the higher the stock climbs, the less likely it is to produce superior returns in the following year.
Still on the subject of historical price action, I have noticed that Apple shares tend to do better in the two weeks following earnings day: nearly 5% gains vs. 2% average. But with the recent surge in share price, could momentum faze post-earnings this time?
Historically, Apple stock performs well in the couple of weeks after earnings day. This time, share price has surged ahead of it. Will the rally fizzle out after earnings season?
Explore more data and graphs
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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)