Barclays Upgrades Apple Outlook, Sets AAPL Target at $110

| Apple Stock Watch

Barclays analyst Ben Reitzes has upgraded Apple stock from Equal Weight status to Overweight and set a price target for AAPL at US$110. That's based on a belief that CEO Tim Cook has solidified his strategy, regained the confidence of stockholders and reversed warning signs seen earlier in the year.

"Overweight" is a technical term for investors. It is an analyst's opinion regarding the future performance of a security. "Overweight will usually signify that the security is expected to outperform either its industry, sector or, even, the market altogether."

Mr. Reitzes wrote:

We believe Tim Cook has solidified his strategy and re-gained the confidence of Apple stakeholders in many ways – reversing many of the warning signs we saw earlier in the year. Second, Samsung’s weakness creates a large unforeseen buffer. Third, our checks around new products (builds, demand & quality) into 2015 are so strong, we are compelled to get on board even if its midway through the rebound trade. Even the March and June upside we have seen change the outcomes for iPhone’s growth trajectory and brand appeal. We can't help feeling the right analogy from a stock standpoint is to compare Apple of 2014 to Google and acknowledge the market wants and needs to own this bellwether into the end of CY14 and into 1H15.

A look at Apple's performance over the last year, adjusted for the recent 7:1 split, serves to punctuate the observations of Mr. Reitzes.

AAPL for last 12 months. Split adjusted. Image credit: E-Trade

Perhaps just as interesting, Mr. Reitzes' report includes a projection of Apple's 2015 revenues at US$207 billion comprised of 197 million iPhones, 68 million iPads and over 16 million Macs.

There was considered optimism about Apple's predicted new products, the 4.7-inch iPhone 6 and perhaps a larger one, the acquisition of Beats, and the iWatch. Described as a "bevy" of new products, the report continued:

We believe an “iWatch” could be launched late this calendar year, with a focus on lifestyle and personal fitness. Nike could be a major partner for Apple in this initiative. We expect this product to ship after Thanksgiving and view it as a very attractive companion product for current iPhone users.

Our math suggests that if the company were able to sell 50 million units, the EPS contribution would be about $4 per share – but that should be offset by some cannibalization of the iPod, assuming the iWatch has some MP3 functionality.

We also believe integrate payments would be one of the most important services that Apple could enter, which could leverage existing iTunes accounts and billing information. We also believe that an Apple-based payments system could eventually involve an expansion of revenue streams into promotions and coupons with retailers, but this type of functionality could also be done with Apps from others (and already is, in many cases). Lastly, we believe Beats and the streaming music opportunity could provide another avenue for growth. We view the beats deal very positively in terms of the talent acquired, like Jimmy Iovine, and the ability to sell more highly accretive accessories globally.

In summary, a clear strategy from Mr. Cook (demonstrated at the WWDC keynote) and a bevy of new products and services makes the prospects for Apple look very good going into the second half of 2014 and beyond.

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In the interest of full disclosure, the author holds small amount of AAPL stock that was not an influence in the creation of this article.

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Comments

aardman

Mr. Reitzes deconstructed:

We believe that we never really understood nor appreciated Tim Cook’s strategy and now that we are witnessing the success of his strategy, instead of admitting that our assessments had been grossly mistaken all along, we are going to claim that our change in outlook is a result of Tim Cook’s strategy having ‘solidified’ (even though nothing really changed with the strategy).

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