What Apple's New Street-High Analyst Price Target of $150 Really Means

Apple Inc. (NASDAQ: AAPL) is far from unaccustomed to seeing analysts upgrade the stock’s rating or its price targets. But now there is a new street-high analyst price target of $150 on the stock, which goes above and beyond the highest targets from other analysts. The new street-high analyst call comes from JMP Securities, and that $150 new target was lifted from the prior target of $135.

What investors need to understand about this new $150 price target is that this compares to a consensus analyst price target from Thomson Reuters of just over $121 as of Wednesday. The prior highest analyst price target was at $143, with Cantor Fitzgerald previously holding the street-high target price record.

JMP’s price target upgrade cited powerful demand in its channel checks at the start of the 2014 holiday shopping season. JMP sees high average selling prices and gross margins as well. The iPhone 6 launch was Apple’s strongest iPhone launch ever, and the company has not yet started selling its Apple Watch.

A key consideration to keep in mind is that the new $150 price target implies a market capitalization rate of roughly $883 billion, versus close to $680 billion in market cap today. At least that is the case without considering the effects of common stock buybacks, which may lower the market cap due to a reduction in shares.

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Another consideration is that Apple’s latest balance sheet included over $155 billion in cash, cash equivalents and investments. That is even after Tim Cook and Apple spent more than $20 billion in the most recent quarter alone for dividends and share buybacks in its return of capital plan, and that brought its cumulative return of capital to shareholders to right at $94 billion. Tim Cook has pledged to keep his capital return program strong.

Apple still sounds almost cheap on a relative value basis to many tech giants and to the S&P 500 index. Its stock trades at roughly 14.9 times expected 2015 earnings per share and at about 13.45 times expected 2016 earnings per share. Apple’s fiscal year-end is in September of each year.

At $115.50, Apple shares were up almost 1% in late morning trading on Wednesday. The stock’s 52-week trading range is $70.51 to $119.75.

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