Apple: how the world’s biggest company can get much bigger

Already rewarding shareholders and recent investors with another all-time high, the rally may have legs.

Investors who have chased Apple (NASDAQ:AAPL) shares to a record high were given further cause for cheer today when a leading bank upped its price target on the tech giant to US$400.

The 23% upgrade by UBS comes ahead of this autumn's anticipated launch of new iPhones, including those with 5G connectivity. The bank's analysts are also expecting that demand for Wearables, such as AirPods and the Apple Watch, will improve strongly as Covid-19 causes consumer spending to shift from leisure and retail towards technology.

While the shares have now risen by almost 50% since the start of April, UBS points to Apple's consistent record of outperforming the S&P500 throughout the summer months.

Source: TradingView. Past performance is not a guide to future performance.

UBS said today:

“We think the consensus EPS estimate would likely move higher as Apple introduces new services and investors recognise the install base has several older generation phones that are up for potential upgrade with 5G as a catalyst.”

Apple shares were the fifth most-bought on the interactive investor platform last month, with clients also snapping up Microsoft and Amazon in large numbers.

This strategy of tech-led international diversification has paid off handsomely so far in 2020, with the Nasdaq up a stunning 16% despite the impact of Covid-19. In contrast, the FTSE 100 index is 16% lower and the Dow Jones Industrial Average down by 8%.

Source: TradingView. Past performance is not a guide to future performance.

In the case of the Nasdaq, just five stocks - Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) - make up 40% of the index.

As UBS said in a separate note today, valuations across the market are being held up by support from the lower cost of equity as central banks step up support in the wake of Covid-19.

Tech stocks appear relatively well insulated from the pandemic, with population lockdowns recently helping to drive a new record for Apple Service sales in Q2 as consumers turned to products such as Apple Music.

Reliance on technology has also increased under work from home conditions, although the opportunity to test and upgrade devices at local stores has diminished. 

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Apple still managed to beat Wall Street estimates in early May, despite China sales being the first to be affected by the corona crisis as the country accounts for over 15% of total group sales. Revenues up under 1% to $58.3 billion exceeded estimates of below $55 billion, buoyed by both a 22% jump in wearable sales, such as its AirPods, and a 16% improvement in Service revenues.

The next landmark for Apple shares is likely to be the launch of new products in the autumn.

In its note today, UBS increased its 2021 revenues estimates for the iPhone and Wearables, with its overall earnings per share forecast of $16.70 now 8% above the Wall Street consensus.

The new price target is based on 24 times next year's earnings, compared with 20 times previously. The $1.5 trillion stock closed last night 2.6% higher at $358.9.