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Apple's price target of $200 is overstated by 25%, says analyst

October 5
9:16 AM 2015

Is the $200 price target for Apple's stock achievable  considering the estimated sales realization from iPhone 6 and Apple Watch?

Some analysts say yes and some say it's overpricing from the current price of $110.  Overdependence on price-earnings (PE) multiples and surplus cash are being added to $200 target.

Analysts feel that though the price target of $200 is in line with expectations, it's too aggressive considering the present market value, PE ratio and sale volume. Everything depends upon the how sales from iPhone 6 and Apple Watch gallop.

The sales volume from these two prominently decided on the price target for Apple in addition to addition cash reserves. Above all, the increasing market competition could pose a strong resistance to Apple's target.

Brian White, an analyst at Drexel Hamilton, set a price target of $200 last week in his initiation report on Apple. Apple Watch is expected to ride on higher sales volume during the Christmas season. iPhone6 is expected to continue its upsurge in the market. 

What's more appropriate and reasonable price target for Apple?  The EPS estimate of $10.25, 13.5 PE multiples and net cash per share of $17 combined together will give a reasonable price target of $150.

On more conservative model, if EPS is decreased by $1 to $9.25 and 13.5 PE multiples will give $137, This is 24 percent higher than the Friday's close of $110.38 share price of Apple. 

White's projections are above the average forecasts made in the market. White's revenues forecast of $256.4bn on Apple for 2016 is much above the $244.8bn market's projections. White projected Earnings per share (EPS) at $10.03 as against the market forecast of $9.78. These projections are totally depend upon iPhone sales and a strong performance from iPad and Apple Watch. 

The 4G subscribers growth in China is encouraging for Apple as it pushes sales of iPhone. There's growing concern about how China's economy slowdown and sluggish financial markets impact Apple's iPhone sales. The robust growth in 3G and 4G subscribers in China during July and August would ease off all the fears. 

China is also considered to be a major market for Apple. Moreover, India will also become another major market for Apple, according to Brian White. Analysts agree on this, but hold the view that it would take some more time to bolster sales volume in countries like India.

White six months ago set the price target for Apple at $195 and stuck to it during the August crash also. Subsequently, Apple's stock fell to $95. Later, Brian White moved from Cantor Fitzgerald to Drexel Hamilton. The latest correction in the market has created an attractive entry level for Apple, says White. 

Considering 17.5 times of PE multiples, White projected price target of $200 for Apple. This translates EPS into $10.25. Apple revenues rose ten times from $24bn in 2007 to $235bn in 2015.

Analysts say that White considered Apple's net cash of $25.71 a share to arrive at $200 price target, while ignoring additional taxes to be paid to get back $181bn of overseas cash. For a company like Apple, it requires to keep $20bn for running operations. This gives excess cash $17 per share as against White's projection of $25.71.

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