While Zoom (ZM) nabbed the coveted Yahoo Finance Company of the Year award for 2020 because of its role in helping to power the new work-from-home world and its stock’s insane 420% advance, tech stalwart Apple (AAPL) didn’t have a slouch of a year.
The iPhone maker hit the $2 trillion market cap level on Aug. 19 and its stock hasn’t looked back. In fact, some of the stats around Apple’s stock this year are nothing short of stunning, considering the world is in the grips of an economic growth crushing health pandemic that should be stunting demand for $1,000 iPhones.
Apple’s market cap stood at $1.29 trillion on Dec. 31, 2019, per Yahoo Finance Premium data. It now clocks in at $2.24 trillion. The forward price-to-earnings multiple on Apple’s stock has expanded to 33 times from 22 times on Dec. 31, 2019, according to Yahoo Finance Premium data. That’s above the five-year average of about 18.2 times.
And the stock price itself has surged 85% year-to-date, outperforming the Nasdaq Composite’s (^IXIC) 42% advance. The Dow Jones Industrial Average (^DJI) — in which Apple is a component — is up a paltry 6% on the year.
What perhaps is even more interesting than those three stats, however, is that nearly 20% of Apple stock’s year-to-date increase has come over the past month. Many analysts on the Street attribute the recent rise to speculation — fueled by a Reuters report — around the arrival of an Apple electric car by 2025.
Assuming Apple could grab 5% market share of the electric vehicle market with a $75,000 iCar in 2025 that sports a 7% operating margin, the tech giant would see a 3% bump in earnings, Goldman Sachs tech analyst Rod Hall estimates. If Apple sells its electric car for $100,000, snags 5% of the EV market, and drives a 10% operating margin, Hall projects the bump to Apple’s earnings would be 5%.
Not too shabby.
But ultimately, chat up any sell-side analyst covering Apple right now and they will tell you the iCar is irrelevant to the great Apple stock story of 2020. The most important element remains demand for Apple’s bread and butter product the iPhone. And on that measure, demand for the suite of new 5G iPhone 12s looks to be strong — only fueling the view in the market of a 5G upgrade super cycle in 2021 and a major positive reset to Apple’s earnings estimates. Even demand for older iPhones appears robust, according to analysts.
“While checks indicate robust demand for 5G iPhones, particularly with lead times expanding for iPhone 12 Pro, upside to aggregate volume expectations relative to bullish buy-side expectations appears limited, which have been primed for a strong 5G cycle. On the flip side, our checks are indicating better consumer demand for legacy iPhones (particularly iPhone 11),” wrote J.P. Morgan tech analyst Samik Chatterjee in a recent note to clients.
Chatterjee raised his 2021 estimates on iPhone sales volumes to 237.5 million from 235.5 million. He sees another 20% of upside in Apple’s stock next year on the back of strong demand for iPhones, Macs, iPads and wearables such as the Apple Watch.
To be sure, Chatterjee isn’t alone on his Apple bullishness headed into 2021.
“iPhone 12 5G stays on track to become the ultimate supercycle and yield north of 240 million units sold in FY21, easily surpassing its previous record in FY15,” says Wedbush tech analyst Dan Ives. “Services business hits $65 billion of annual revenues in FY21 and remains a key chapter in the Cupertino success and monetization story for years to come. We believe the services business is worth $1 trillion on a SOTP [sum of the parts analysis] basis.”
Ives has a $160 price target on Apple’s stock, or 18% above current price levels.
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