Apple’s recent Wall Street losing streak over the past week didn’t shake Goldman Sachs’ faith in the company in the slightest. Indeed, in a note to clients this morning, analyst Bill Shope reiterated his “buy” rating on Apple and boosted his 12-month price target on the stock to $750 from $700, arguing that this is “the beginning of a very big year” for the company.
According to Shope, recent investor concerns that have weighed on Apple shares — soft Mac sales, the prospect of an iPhone subsidy revolt among carriers — are overblown and will be proven wrong when the company reports earnings next week.
“We expect solid March quarter upside, which is likely to trigger healthy increases in iPhone, iPad and overall earnings expectations for the full year,” Shope wrote. “In addition, we believe recent investor concerns over a ‘catalyst-light’ June quarter are misguided, since this will be the first full quarter with a refreshed iPad, a lower-priced iPad 2, and a fully ramped iPhone distribution channel; in other words, the June quarter is when many of the recent catalysts begin to fully manifest into earnings power.”
And with that, he raised estimates for Apple’s second quarter to $36.9 billion and $10.18 per share, ahead of current consensus, which is about $36.67 billion and $9.98.
A five-day losing streak wasn’t enough to shake Goldman Sachs’ love for Apple.
In a research note this morning Goldman Sachs is not only sticking with its its “conviction” buy rating on Apple, but it also boosted its 12-month price target on the stock to $750 from $700.
“Despite recent volatility, we continue to believe Apple’s shares are very attractive at current levels,” said Bill Shope, an analyst at Goldman. “It remains our top pick, and we’d be buyers ahead of March-quarter results.”
Shope predicts Apple’s quarterly report, expected on April 24, will show strong iPhone and iPad sales figures will boost overall results. And any concerns of a “catalyst-light” current quarter are misguided, he added. Also, concerns about a potential reduction in iPhone subsidies from wireless carriers are “overblown,” Shope says.
“This will be the first full quarter with a refreshed iPad; a lower-priced iPad 2, and a fully ramped iPhone distribution channel,” Shope says. “In other words, the June quarter is when many of the recent catalysts begin to fully manifest into earnings power.”
Apple shares have followed yesterday’s 5.1% surge with another 0.5% gain this morning. The bounce back has occurred after the stock fell 8.8% over a five-day losing skid.
The recent drop in Apple shares sparked a broader debate about whether Apple was poised for even larger decline. The stock is up nearly sixfold since March 2009, and its upward march has been largely unchallenged until now. But yesterday’s snapback has diminished many of those fears.
On a valuation basis, the stock still looks pretty cheap. As WSJ’s Heard on the Street columnist Rolfe Winkler pointed out in today’s paper, as fast as Apple shares have climbed, earnings have climbed even faster. Apple is trading at 14 times this fiscal year’s earnings, which is comfortably below the roughly 16 times commanded by the tech-heavy Nasdaq Composite.
“At these levels, we don’t believe the bears can stick around for long,” Goldman’s Shope says.