What Are Apple Shares Really Worth?

| About: Apple Inc. (AAPL)


Apple has enjoyed an extended uptrend.

Apple was recently given an upped price target.

The fall product launch looks promising.

The recent seven-for-one stock split in shares of Apple (NASDAQ:AAPL) have given yet another boost to the run that has seen the stock's price nearly double since the beginning of 2013, driven largely by several successful iPhone introductions. Given this significant level of appreciation, investors must be asking themselves if the trend can continue, or if Apple is due for a big correction. While I would like to see the Apple iPhone 6 find a way to leapfrog Samsung (OTC:SSNLF) back to the "cutting edge" of smartphone technology, the regular pattern of the iPhone upgrade cycle is likely to drive shares higher. If Apple iWatch rumors come to pass, and the new device is also rolled out this fall, shares have the potential for an upside surprise. Given Apple positives, and the potential "frenemies" drama brewing between Samsung and Google (NASDAQ:GOOG), I am a buyer of Apple at current levels.

Impact of the Split

While in real money terms, stock splits have minimal impact, the psychological significance can be important; the stock "feels" cheaper, particularly to retail investors who may have looked at a $650 stock as out of reach. Leaving aside the poetry of a share of Apple being priced roughly in line with the price of an iPhone, the split-priced stock is likely to make it more attractive to small investors. In some stocks, this is of less significance - professionals alone are able to drive price - but in Apple, which has made itself aspirational from its products to its shares, there is likely to be added upward pressure, as well as added support, that results from the lower price.

What the Pros Think

Last week, noted Raymond James analyst Tavis McCourt upped his price target on Apple shares from $86 to $102:

"After a >50% total return in the last 12 months and much improved investor sentiment, we still view continued upward movement in the shares as likely into 3Q14 results, and suspect the typical trading pattern of trading up into the iPhone announcement with a pullback to follow will persist this year as well."

His projections are based on meaningful upgrade demand, larger for a larger-screened iPhone 6, which will likely come at a $100 premium. McCourt's numbers suggest that Apple will benefit from sales to current iPhone users from the introduction of a larger screen, but he predicts "modest contribution from wearables," leading to increased revenue growth into 2015.

The iPhone 6 and the Battle With the Galaxy

McCourt also cites "trends eroding over the past several quarters" for Samsung, which, he believes, should give investors additional confidence in Apple's position. Additionally, with the recent introduction of the Samsung Z, the first-ever smartphone built on the new open-source OS called Tizen, there is at least the potential to see some shakeup between Samsung and Google heading into the fall. While it is hard to imagine that Samsung will simply expect Tizen to take over for Android, the two are more likely to be focused on each other than on Apple; this may clear the way for the iPhone 6 to really grab the attention of the media and the consumer market.

AAPL Chart

AAPL data by YCharts

iPhone Upside Surprise?

While I think the probability of the iPhone 6 being a market-changer is low, Apple shares are solidly positioned for positive performance. The stock continues to trade at a modest valuation with a P/E below 16 and pays a 2.1% dividend yield, despite still holding the "growth stock" moniker. The upside surprise for Apple shares, if there is one, is likely to come from the iWatch. The wearables market, in my opinion, is the next frontier in personal electronics, and a solid showing from Apple could give Cupertino some of its old cache back. I'm a buyer of Apple shares on the iPhone upgrade, but the risk/reward continuum is greatly improved by the significant potential this new device lends to Apple.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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