Rob Cira, analyst at Evercore Partners, raised his price target on Apple Wednesday to $115 from $100. Apple shares are at $93.50, up close to 17% for the year to date including 25% gains since Apple reported fiscal second-quarter earnings in April.
In his note he says, "We see Apple creating its own growth through uniquely innovative hardware+software with integrated services vs. a sea of otherwise commodity devices."
It's his reference to "sea of commodity devices" that tells me Apple has finally killed off Samsung. And two years ago, CEO Tim Cook told you exactly how Apple planned to do it.
With roughly three weeks before Apple reports fiscal third-quarter results, investors waiting for a better entry point will be disappointed. The median price target for these shares are now at $100, suggesting (at least) 7% upside from current levels. This does not even factor the $130 billion Apple expects to return to shareholders by the end of 2015.
As Tim Cook promised, Apple is a new company. We learned this in the first few minutes of his keynote at the company's Worldwide Developers Conference last month. Apple's HomeKit, its new home automation platform is the next battleground.
Apple's software capabilities and the breadth of its ecosystem will spur "smarthomes" and smart devices as the new growth area. Samsung is nowhere to found.
These smart devices will require connectivity. Right now it is a highly fragmented space where several manufacturers have their own proprietary home automation platforms that make it difficult for the hardware to talk to the software. Apple's ecosystem will fix this problem by unifying the standard.
Analysts like Chira are now realizing that Samsung is nowhere to found.
Recall, when Apple stock began its 44% decline from its pre-split high of $705 to around $388, the was no bigger winner in Apple's punishment than Samsung. In fact, according to the Wall Street Journal, former Samsung America CEO Dale Sohn once wrote in a presentation, "Beating Apple is no longer merely an objective. It is our survival strategy."
To achieve this, Samsung focused on the low-end device market to grow its global share. But to make any money Samsung has used plastic covering and other cheaper materials, which placed the phones at a lower price point. This is an area where Apple, despite pleas from investors and analysts, has avoided. In response, Tim Cook said, "We're not in the junk business."
Samsung, meanwhile, floods the market with devices, refreshing its product cycle every six to eight months. Apple, by contrast, has a longer product refresh cycle of 12 to 18 months. Samsung strategy is to "get there first." This strategy worked against Apple two years ago. Today, it has backfired. Why? Because Apple has pivoted into a service-oriented and ecosystem-focused company.
Samsung remains stuck in low-margin hardware. Or as Chira phrased it, a "sea of commodity devices." The mobile phone market is suffering from high-end device saturation and low average selling prices. Only Apple is making money.
Samsung, which has risen to prominence by "drawing inspiration" (I won't say copy) from Apple's design, is now battling a ghost. Samsung's strategy of producing very good but not amazing products is its downfall. It remains to be seen how quickly Samsung can pivot to match Apple's software/services initiatives. Until then, they're no longer in the same league.
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 multiple 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 2.3%. 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 5.32%.
- You can view the full analysis from the report here: AAPL Ratings Report