Optimism on new iPhone and hopes on cash repatriation propel group past its 2015 level
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Apple stock hit a new all-time high on Monday, driven by investor optimism that the launch of a new iPhone later this year will spark a sales “supercycle” and hopes that the company’s $230bn in overseas cash might soon be put to greater use.
It has taken two years for Apple to surpass its record closing price of $133 in February 2015, despite briefly breaking above that level during intraday trading at $134.54 in April of that year. The shares closed at $133.29 on Monday, valuing the company at $700bn.
Apple shares have risen by more than 15 per cent so far in 2017 and by more than 40 per cent in the past year. The iPhone maker overtook arch-rival Samsung to become the top-selling smartphone maker in the fourth quarter of 2016, according to several researchers.
Apple’s valuation has increased by more than 1,000 per cent in a decade. After the stock’s four-year surge following the release of the second-generation iPhone in 2008, Apple investors have had a more turbulent ride under chief executive Tim Cook since 2012, amid recurring doubts about his ability to maintain the series of innovations and growth seen under co-founder Steve Jobs.
Now, after briefly losing its crown as the world’s most valuable company to Silicon Valley rival Alphabet a year ago, investors are turning back to Apple as a high-yielding, slower-growing bet on the smartphone’s continuing domination of the technology industry.
Quarterly earnings at the end of January beat Wall Street’s expectations, prompting several analysts to raise their estimates for how much higher the stock could go.
Many on Wall Street are pinning their hopes on a “supercycle” of consumers upgrading their iPhones when the next model arrives in September. Goldman Sachs’ price-target rise to $150 on Monday helped propel the stock to its new high, as it predicted a “significant step-up in innovation” with the next iPhone.
That smartphone is expected to be a more radical departure from its predecessors than the past two updates, with a brand new design featuring an edge-to-edge organic light-emitting diode screen, and wireless charging, as well as new “augmented reality” features.
This month, Apple joined the Wireless Charging Consortium, signalling its wider commitment to a technology that it first used in its Apple Watch.
Mr Cook told The Independent newspaper in an interview last week that he sees AR — that allows digital images to be intermingled with the real world, either through a handset’s camera or a headset — as a “big idea like the smartphone” that could appeal to “everyone”.
“I think AR is that big, it’s huge,” Mr Cook said.
Goldman analysts said in Monday’s note: “Augmented reality could be the new killer app to reinvigorate upgrade demand for premium smartphones and in particular the iPhone.”
After Apple reported better than expected earnings last month, Morgan Stanley also raised its price target to $150, in part because of strength in Apple’s services business, which could lift overall profit margins in the coming years. Around the same time, Citi lifted its target to $140, given stronger-than-expected iPhone sales and pricing for the holiday quarter.
“In our view, Apple remains one of the most under-appreciated stocks in the world,” said Brian White at Drexel Hamilton in a recent note.
Apple’s quarterly regulatory filing revealed that advanced purchase commitments with suppliers rose 16 per cent year on year, which some analysts took as a signal of stronger revenue growth ahead.
UBS said it was the largest increase since September 2015, coming after four quarters of declines, and “somewhat surprising” given expectations of “flat-to-down” hardware sales for the March quarter.
Further boosting the share price is that many investors are hoping a tax holiday under the Trump administration would allow the iPhone maker to repatriate some of its $230bn offshore cash pile.
Those funds could then be used to increase its capital return programme, which has already pledged to return $250bn to shareholders by March 2018. Of that, more than $200bn has been paid out to date, Apple said last week, including $15bn in dividends and share buybacks in the last quarter.
Apple pays out about 22 per cent of its free cash flow, according to a recent note by RBC Capital Markets, a figure its analysts say could be increased to more than 50 per cent, attracting a “host of new investors”.
Copyright The Financial Times Limited 2017. All rights reserved.
