Even as Apple shares head about 1% lower in early trading on Wednesday, March 10, one Wall Street analyst doubles down on his bullishness. According to Wedbush’s Dan Ives, Apple stock could soar 86% under his bull case, nearly doubling in value, over the next 12 months.
Dan Ives is known for being Apple’s “bull of bulls” on the Street. Could he be right about the investment opportunity? The Apple Maven breaks down his key arguments below.
Not only is analyst Dan Ives optimist about Apple, he thinks that buying shares is just about one of the best things that an investor can do with his or her money. Here is the quote:
“We are adding Apple to the Wedbush Best Ideas List as the recent sell-off creates a golden buying opportunity with a $3 trillion valuation on the horizon for Cupertino, in our opinion.”
At the center of Wedbush’s investment thesis sits the iPhone. Straight out of his financial model, Dan Ives sees shipments of the device reaching as many as 250 million units, instead of the current 220 million consensus. This is nearly 15% upside to the Street’s base case.
Mr. Ives defends his estimate from the supply and demand sides of the equation. On the former, the analyst has cited channel checks in Asia that point at robust iPhone production. He seems to have been right about it in the holiday quarter, at least.
On the latter, Wedbush believes that about 350 million out of 950 million iPhones around the globe, or nearly 40% of the installed base, are due for an upgrade during this 5G cycle. The research shop seems particularly optimistic about Asia, where demand in Greater China showed definitive signs of life in the most recent quarter after a long time of underperformance.
But the story does not end in 2021. Dan Ives has been one of the first to discuss the iPhone 13 opportunity, a few months ahead of the speculated product announcement. The analyst believes that the “super cycle party” will continue into 2022, again citing channel checks as evidence. He adds:
“[We have] increased confidence that iPhone 13 will have a 1 terabyte storage option which is double from the highest Pro storage capacity today.”
The Apple Maven’s take
I am largely aligned with Dan Ives on the iPhone opportunity over the next year or two. The company has already offered early signs that pent-up demand for Apple’s 5G device is robust, judging by fiscal first quarter numbers.
I also agree that owning the stock on a 15% to 20% pullback is compelling. I have discussed several times the benefits of buying the dip in Apple shares, and how doing so tends to increase future returns.
At the same time, I am skeptical that the stock could nearly double within the next year. First, shares are already coming off two outstanding years of performance: 80%-plus in 2019 and 2020. In its 40-year history, never has Apple returned more than 80% per year for three consecutive years, as Dan Ives believes could happen this time.
Second, valuations would likely need to expand substantially for Apple shares to be worth $225 apiece. Let’s do some math.
Assume fiscal 2022 earnings estimate of $4.63 per share is understated by 10%, and Apple manages to deliver $5.10 instead. For shares to be worth $225, they would need to trade at a current-year P/E (price-earnings ratio) of 44 times this time next year.
The multiple is currently a much more modest 27 times. It has only surpassed 40 times once in the recent past: for about one day in early September of last year, immediately before the stock staged a rapid decline of about 20% from the top.
An 86% return opportunity is attention-grabbing, but I wonder if investors believe in the aggressive bull case. I asked Twitter the following question:
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