Apple Inc. (NASDAQ: AAPL) is closing in on the release date for the Apple Watch, March 9, and analysts are buzzing with anticipation. Oppenheimer, along with a couple of other firms, raised price targets in anticipation of the release.
Source: courtesy of Apple Inc.
Oppenheimer maintained an Outperform rating and raised its price target to $155 from $130. The firm is very optimistic on the Apple Watch’s market potential. It sees the wearable device as an object of utility, affection and luxury that represents the next step in a “mobile first” future. Along with the price target, Oppenheimer raised its other financial estimates for Apple based on a more bullish outlook on its product cycle.
Superior understanding of and expertise in human interface designs are Apple’s core competency. While Apple is shackled by the same limitations of battery power and chip speed, Oppenheimer believes that human interface innovations on the Watch will make it fundamentally more feature-rich, user-friendly and elegant than its competitors.
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In its report, Oppenheimer analysts commented on Apple’s ecosystem:
We expect the event to focus on the Watch, including details on apps, hardware components, sales strategies, and shipment timing. We also expect Apple to refresh MacBook Air and Apple TV. Lastly, we believe a streaming service merging iTunes Radio and Beats Music will come online sometime in the first half of 2015.
The revisions by Oppenheimer were driven by an expected higher revenue contribution from the iPhone and Apple Watch, as well as margin improvement from a better product mix and a strong outlook in emerging markets for the 2016 fiscal year.
The price target of $155 is based on a 13-times multiple from the 2016 fiscal year earnings per share (EPS) estimate plus $25 net cash per share.
However, there are risks to this investment thesis. Lower-than-expected iPhone shipments and lower margins for the Apple Watch are the main risks that Oppenheimer sees threatening Apple’s position. Of course, there will always be margin pressure from foreign exchange rates and with that volatility.
Shares of Apple were flat at $129.10 just following the opening bell Tuesday. The stock has a consensus analyst price target of $135.27 and a 52-week trading range of $73.05 to $133.60.
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