Forget New iPad 3: iPhone 5 Launch May Make Apple Stock Zoom to $700

  on March 19 2012 2:02 PM
A man uses his iPad to photograph customers who have slept outside a store for 48 hours waiting to purchase new Apple iPad tablet computers in central London
A man uses his iPad to photograph customers who have slept outside a store for 48 hours waiting to purchase new Apple iPad tablet computers in central London Reuters

On Friday, March 16, UBS analyst Maynard Um issued two research notes on Apple Inc. In the first note, the analyst raised Apple's price target from US$550 to $675, expecting the launch of a new iPhone later this year to be the biggest launch in Apple's history. In the second note, Um deemed the launch of the new iPad a success.

We expect Apple to launch its redesigned iPhone 5 in October & expect the company to accelerate the number of initial carriers it sells into to drive its biggest launch ever, wrote the analyst, raising his price target. Although supply chain constraints are difficult to assess at this point, we expect Apple to be prepared for a big launch. While the iPad 3 reception & dividend are important, we believe the iPhone 5 will trump both as a catalyst.

Biggest Launch in Apple's History

UBS expects the launch to be so big that it actually raised its full-year 2013 iPhone sales estimate from 149.5 million units to 156.5 million. According to a regulatory filing, Apple sold 37.04 million iPhones in the last quarter of 2011. Apple has not announced the new iPhone yet, but it is expected to expand its smartphone line by the end of the year.

UBS' Maynard Um further noted that Verizon Wireless is planning to change its billing practices to an account-based billing, which would allow users to spread their data among multiple devices. This change will help shift more toward higher priced/margin LTE-enabled iPads, added Um, referring to Apple's product mix.

Higher Estimates for Fiscal 2013

With such factors into account, the analyst raised his estimates for fiscal year 2013 from $175.8 billion in revenue to $180.1 billion in revenue. Moreover, Um raised his EPS - earnings per share - estimate from $48.83 to $50.43. Estimates for the fiscal year 2012 remained unchanged, meaning revenue of $161.2 billion and EPS of $46.09.

The complete redesign should drive a stronger than average upgrade cycle for existing iPhone users and continue to encourage other smartphone and non-smartphone users to make the switch, noted the analyst. Um added, however, that supply constraints might be a problem, but for now this is hard to assess.

When it comes to Apple's other devices, including the new iPad, UBS is confident that nothing will beat the highly anticipated iPhone 5. While the iPad 3 reception and use of cash issues are important, we believe the iPhone 5 will trump both as a catalyst in 2012, wrote the analyst. Moreover, UBS believes it is simply a matter of time until Apple agrees to a dividend in the 2 percent range.

Oppenheimer analyst Ittai Kidron is more optimistic. Kidron, in a note to clients, wrote that the new iPad looks to be very strong. The analyst raised his price target on the Apple shares to $700 from $570 and suggested that the new iPad as well as the current iPhone 4S sales will do well.

On Monday, Apple CEO Tim Cook announced that Apple will pay out quarterly dividend and share buyback that will pay out $45 billion over three years. The tech giant said it will initiate a regular quarterly payout of $2.65 a share, beginning July, and buy back up to $10 billion of its stock, beginning in the next fiscal year. The $10 billion annual dividend program is among the largest cash payouts made by U.S. corporate giants in a decade.

Apple shares were up 1.95 percent at $597 during early afternoon trade on the Nasdaq.

(reported by Alexandra Burlacu, edited by Surojit Chatterjee)

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