iPhone 5 Release Date: Is Apple Headed to $600 in 2012? - Stock Review

ANALYSIS

 @JosephLazzaro
on September 25 2011 2:58 PM

The much-speculated licensing of Apple's (AAPL) iPhone 5 on/about Oct. 7, to much-maligned cell phone service provider Sprint (S), not only has the capacity to rejuvenate Sprint, it could spark an iPhone 5 wave in the cell phone service provider sector.

In other words, a renaissance in the sector -- one that attracts new minds (translation: subscribers) that previously had not considered the iPhone 5 or even a smartphone, and one that bodes well for Apple's shares.

Most investors know that the past 10 years, and in particular the lost decade of 2001-2008, was difficult for investors, but there are always companies that manage to outperform competitors and shine, and the iPhone 5-clad Apple is one of them.

iPhone 5-Boosted Revenues

Look for Apple's fiscal 2012 revenue to surge 20 to 25 percent -- and this is after a 67 percent revenue jump in fiscal 2011, boosted by the aforementioned iPhone 5 wave, and strong unit sales of the iPad and MacBook (Apple's name for laptops).

What's more, the above-mentioned robust sales trend means iTunes revenue will also increase at an impressive rate in fiscal 2012, as Apple's hardware sales lead to more downloads of apps, music and movies.

The lone negative in Apple's line-up? The iPod, whose market share will likely decline, due to market saturation and Apple's huge market share in the sector.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for AAPL are $27.58 to $32.31. That FY2011 EPS estimate looks about 10 percent too low, and the FY2012 EPS estimate looks about 10 to 15 percent too low, according to my analysis. Reuters also expects Apple to register fiscal 2011 revenue of $108.6 billion, and fiscal 2012 revenue of $133.2 billion

Margins should total about 40 percent in fiscal 2011 and 41 percent in fiscal 2012, as Apple ramps up iPhone and iPad production, benefits from economies of scale and eliminates inefficiencies detected in the ramping up process.

There is some concern among analysts regarding softer demand for desktops and laptops, but the iPhone 5 revenue stream will more than make up for it.

Meanwhile, Apple's cutting-edge design capabilities, product durability, marketing prowess and strong free cash flow can scare off only the lowest-risk investors.

Apple is that rare technology company you can buy for your kid's college fund and in 10 years, you'll be glad you did. That is a testament to founder Steve Jobs -- an inventor in the league of Thomas Edison.

Apple Bucks the Market

Technically, Apple's shares have handled the U.S. stock market's recent volatility very well. The stock cycled between $325 and $360 for much of the first half of 2011, then vectored to $400 in the summer. A roughly (and healthy) 30 percent correction followed to about $360, before the stock re-took the $400 level in September. Even better, Apple's shares have been above the key 50-day moving average for more than two months -- a bullish sign -- with touches of the line met with buying pressure.

Where's Apple headed? Most likely, to $450 by the end of 2011, and to $550 by mid-2012.

What's more, Apple's P/E of 16 is not low, but it's not high either, given AAPL's growth rate and potential, and if institutional investors ever sense that the global financial crisis is over, Apple may be granted a higher P/E. If the latter becomes a reality, Apple will venture higher in late 2012 to $600.

Stock Category: As noted, an iPhone 5-clad Apple is an exception to the tech sector rule that argues against adding tech stocks to your kid's college fund. Apple is battle-tested and symbolizes U.S. innovation capabilities: Its shares are headed north, assuming even sluggish 2012 U.S. GDP growth. However, consider Apple only if you have the patience to wait two years to realize a capital gain. There's also a 2 percent chance you'll lose your entire investment with AAPL over a 10-year period.

2011 Outlook: I view as Apple a long-term play, but if you're looking to sell AAPL within the year, it's probably best to take your profits after it rises to $450 to $475, if it fails to rise above $500.

Stock Analysis: Apple Inc. is a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 50% position in AAPL now; then buy another 50% in one month, if U.S. economic conditions don't worsen substantially. I'd put a sell/stop loss at: $220.

- -

Disclosure: L.C. Jacobs of New York, N.Y. reviews stocks on a quarterly, semi-annual, and annual basis.

L.C. Jacobs has no positions in stocks reviewed, but does own federal, municipal, and corporate bonds.

Share this article