Apple’s stock (AAPL) looks juicy at current levels. The tech giant, valued at $468 billion, sports the largest market value of companies in the Nasdaq 100 index. Apple shares shed 6% year to date while gaining 24 percent in the past 12 months. They returned a whopping 32% a year for the past 15 years, according to Morningstar. The S&P 500’s performance sours in comparison, returning 4 percent annualized the past 15 years. The S&P is flat year to date but ahead 20% on a 12-month basis.
Apple’s stock looks juicy, trading at a discount to both its historic average and the stock market. Apple currently trades at 13 times earnings versus its five-year average of 15 and the stock market’s P/E of 18. Apple trades with a price-to-book ratio of 3.6 and price-to-sales ratio of 2.8. Both ratios are below their five-year average of 4.6 for book value and 3.4 for sales. The S&P trades cheaper than Apple on those metrics with a 2.6 price-to-book ratio and 1.7 price-to-sales ratio.
In its 2013 fiscal year, sales sweetened 9 percent year over year, driven by a 16 percent boost in iPhone sales and 25 percent jump in the iTunes, software and services unit. S&P Capital IQ forecasts a 7 percent revenue increase for fiscal 2014 and 6% sales improvement in fiscal 2015. S&P rates Apple’s stock a buy with a 12-month price target of $590 a share, which looks like a juicy 12% gain above Friday’s closing price of $524.69.
Apple benefits from high-switching costs for phone plans, a loyal customer base and dominance in both hardware and software, Scott Kessler, an equity analyst at S&P Capital IQ, wrote in a report dated March 15. Apple’s cash reserves will be used to increase dividends and share buybacks, which activist investor Carl Icahn is pressuring the company to do.
In April 2013, the Cupertino, Calif.-based technology powerhouse announced a $50 billion addition to its share buyback program and a 15 percent dividend increase. It has amassed a stockpile totaling $159 billion in cash and investments.
A partnership with China Mobile, in the People’s Republic, should juice returns, says Brian Colello, an analyst at Morningstar. Morningstar rates Apple shares hold with a $570 fair value estimate, up 9 percent from the current price.
“Apple’s strength lies in its experience and expertise in integrating hardware, software, services, and third-party applications into differentiated devices that allow Apple to capture a premium on hardware sales,” Colello wrote in a note released March 14. “Although Apple has a sterling brand, robust product pipeline, and ample opportunity to gain share in its various end markets, short product life cycles and intense competition will prevent the firm from resting on its laurels or carving out a wide economic moat.”
The smartphone market is projected to double between 2012 and 2015, Colello added citing Gartner research. Apple is positioned to pump up sales for its iPad as tablets take over personal computers in the coming years.
However institutional investors are heavily selling shares based on technical analysis indicators, says Brad Lamensdorf, co-manager of the Ranger Equity Bear exchange traded fund (HDGE).
“While we wouldn’t short Apple (to profit from falling prices), it has a poor accumulation and distribution pattern in its (trading) volume,” Lamensdorf said.
The investment risks include weaker-than-expected consumer demand, pricing pressures, a competitive smart-phone and tablet market, and cell phone companies cutting or decreasing subsidy payments, Kessler of S&P noted.
Among the 52 analysts who cover Apple, 17 rate it a buy, according to Thomson Reuters. Nineteen rate it outperform. Fourteen rate it hold while only two rate it sell. Their target price on Apple stock ranges from $27o a share to a high of $777 with a mean of target price of $588.16, which looks juicy given shares ended Friday at $529.69.
By Trang Ho
S&P Capital IQ (report)
Thomson Reuters (report)
Brad Lamensdorf, co-manager of Ranger Equity Bear ETF