Analysts Kept Valuing Apple Higher and Higher

Source: courtesy of Apple Inc.

This post has been updated.

Apple Inc. (NASDAQ: AAPL) reports earnings after the close of trading on Tuesday. While the media focus will likely be dominated by the formal earnings report, 24/7 Wall St. will be paying closer attention to guidance and to the launch of new products — particularly in light of word that Apple has ordered some 80 million new larger iPhone formats for the upcoming iPhone 6 release.

UPDATE on Apple Earnings view: Apple’s revenues were hurt by weak iPad numbers, as well as sequential declines in all regions except for the Americas. (FULL REPORT)

What is interesting now is that Wall Street analysts have been stepping all over themselves to upgrade their earnings targets and price targets going into the report. Some have formally raised their ratings as well.

The consensus earnings estimates from Thomson Reuters were $1.23 in earnings per share (EPS) and $37.99 billion in revenues for this past quarter. Apple’s guidance in the prior report was for the company to generate $36 billion to $38 billion in revenues during the quarter. Note though that the current quarter may be much less dominated by the United States, where many consumers are awaiting product refreshes. Consensus estimates for the coming quarter are $1.34 earnings per share and $40.44 billion in revenue.

Gross margin last quarter was 39.3% (versus 37.5% a year earlier), and Apple guided its margin for this quarter in a range of between 37% and 38%. Keep in mind that international sales accounted for 66% of the last quarter’s revenue, and with a still-fresh China debut we think Apple’s quarter could be foreign-centric.

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So, what do all these numbers really mean? Apple is now valued on the market at 15 times expected 2014 earnings and 13.5 times expected 2015 earnings. Apple’s market cap is also just under $570 billion. We will pay close attention to how much was spent on share buybacks in the last quarter.

Again, analysts keep raising targets and ratings. It is as if no one wants to be formally against Apple. 24/7 Wall St. has compiled an analyst rating montage to see how analysts are valuing the stock going forward.

There are many things to consider outside of just the Wall Street analysts. The chart and options trading have to be considered as well.

Chart watchers will see that the $94.25 or so price as of the earnings date compares to a 50-day moving average of $91.34. Apple shares have recently peaked around $97. That puts the chart in a “$3 up, $3 down” nearest chart focus. Longer term, Apple’s 200-day moving average is all the way down at $79.70.

Options traders seem to be using Apple shares again now that the stock’s $500 and $600 share prices are not forcing speculators into the options. That being said, options are still very active, with the open interest in the near-month strike prices up and down by $5 being over 200,000 contracts on last look. Also, there are many more call options than put options, implying that the bias is a bullish one here as well.

Our best efforts basis in predicting what options traders are braced for ahead of earnings is a move of $3.50 in either direction. This is not as exact at the moment because the post-split adjusted strike prices are off.

Apple’s consensus analyst price target has risen with new analyst calls. What was a consensus price target from Thomson Reuters of $99.57 late last week has now risen to $100.85 ahead of earnings. The recent analyst calls we have tracked are as follows:

• JMP Securities raised Apple to Outperform from Market Perform and the price target went all the way up to $135 in a call on July 21.
• Citigroup started Apple with a Buy rating and a $110 price target (versus a prior $95.32 close) on July 16.
• Barclays raised Apple to Overweight from Equal Weight, and the price target was raised all the way up to $110 from $95 (versus a $95.22 close) on July 14.
• Morgan Stanley maintained its Overweight rating and raised the price target to $110 from $99 (versus a $95.22 close) on July 14.
• Canaccord Genuity reiterated its Buy rating on Apple and the price target was raised to $112 from $102 (versus a $95.04 close) on July 11.
• Mizuho maintained its Buy rating and raised its price target to $105 from $90 (versus a prior $95.97 close) on July 8.
• Evercore Partners reiterated its Overweight rating on Apple and the price target was raised to $115 (versus a prior close of $93.52) on July 2.
• Barron’s included Apple on a list of the world’s most respected companies on the weekend of June 28.
• Needham & Co. reiterated its Buy rating and raised its price target to $97 from $86 (versus a $90.83 prior close) on June 24.
• Societe Generale raised Apple to Buy from Neutral and raised its adjusted price target to $105 from $82 (versus a $92.08 prior close) on June 18.
• Apple recently ranked as number 10 on the 2014 Customer Service Hall of Fame, behind Hewlett-Packard, Sony and Amazon.

This post will be updated for any whisper numbers and last minute data.

After trading around $94.25 in the hours ahead of earnings, Apple’s 52-week post-split adjusted trading range is $59.82 to $97.10.

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