Will Ratings Upgrade Help Apple (AAPL)?

NEW YORK (TheStreet) -- Andy Hargreaves at Pacific Crest has upgraded Apple (AAPL) to "outperform" from "sector perform" and given it a price target of $635. This rating comes on speculation that Apple will release the next iteration of its popular iPhone series, iPhone 6, in the fall and will give the phone a with-contract price point of $299 -- $100 more than what it currently charges for the iPhone 5 series.

The iPhone 6 is expected to have a 4.7 inch screen, 0.7 inches larger than iPhone 5s screen. This jump in screen size is expected to attract a lot of Apple consumers who would like to upgrade their phone. The screen size on the iPhone's main rival -- Samsung's Galaxy S series -- has long dwarfed the more sleek iPhone model. A potential screen size increase would be the latest salvo in the smartphone war between the two tech companies.

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Hargreaves pointed to the failure of the iPhone 5c as an indicator that Apple enthusiasts would not mind paying $100 extra for a superior product. Apple released the 5s at a $200 price point and the 5c at $100 at the same time last year. The 5s took off despite the higher price while the 5c sat on store shelves.

Apple was up 0.14% to $538.82 today at 11:22 a.m.

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

"We rate APPLE INC (AAPL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. 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, solid stock price performance, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • AAPL's revenue growth has slightly outpaced the industry average of 4.7%. Since the same quarter one year prior, revenues slightly increased by 5.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although AAPL's debt-to-equity ratio of 0.13 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 1.23, which illustrates the ability to avoid short-term cash problems.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • 41.65% 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 22.69% is above that of the industry average.
  • APPLE INC's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, APPLE INC reported lower earnings of $39.63 versus $44.16 in the prior year. This year, the market expects an improvement in earnings ($42.73 versus $39.63).
  • You can view the full analysis from the report here: AAPL Ratings Report
STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more

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