Apple Inc. shares have been tanking since the firm reported disappointing earnings and guidance last week. On Tuesday, the stock closed at about $95 while the average target price on the shares is about $125. However, Credit Suisse analyst is still sticking with his $150 price target. Why so?
Why $150 price target for Apple?
On Tuesday, Kulbinder Garcha – a Credit Suisse analyst – said even as the stock is nearing its 52-week low, he will stick with his $150 price target. Apple reported its first drop in quarterly revenue growth in 13 years. Also, for the first time, the sales of its iPhones declined in comparison to the previous year. The latest iteration of the iPhone – the iPhone 7 – is expected to be released later this year.
Garcha said many of the factors hurting the share price are not permanent, and can reverse in the next 6 to 12 months. In an interview with CNBC’S “Squawk Box,” he said “On the iPhone side, what’s really hurting demand is the rate of upgrade. Apple had an accelerated rate of upgrade with the iPhone 6 cycle. This year, that’s normalizing,”
It is really necessary to understand that the iPhone users replace their devices typically in 13 months, and around 90% to 95% of those users stick with the brand, said Garcha. And, the sales of iPhone units can recover if those trends hold, the analyst said.
Garcha said Apple’s valuation is in-line with that of other handset makers as the stock is trading at roughly 9.5 times forward earnings. Only a few other firms have the Apple like retention, and a rival would have to introduce a better user experience across mobile, TV platforms, computer at a cheaper rate to disrupt the iPhone maker, said Garcha.
Taking of international growth, Garcha said if the US firm replicates its success in China, encouraging consumers to spend an average of $600 a year on Apple Inc. products, then it stands to generate another $90bn to $95bn in another half decade. Garcha noted that the firm needs to extend its reach in markets like Brazil, Russia and India as it currently lacks local support and direct retail presence.
Next iPhone cycle
Separately, Piper Jaffray analyst Gene Munster says the iPhone is different from the iPad because people use handsets more often. Munster said the iPad benefitted from pent-up demand when it was released, but now that demand has been satisfied. The sales of iPad have been declining for the past two years.
Munster said analysts have a good handle on how the next cycle will play out after following the iPhone for nine years. “This next wave of people that are upgrading, this echo effect from the iPhone 6, is about 30 percent bigger than the iPhone 6s,” Munster said on CNBC’S “Squawk Alley.”
Apple missing on opportunities
On Tuesday, Venture capitalist Fred Wilson also disclosed his opinion on Apple, saying the tech giant is not focused on what is driving the future technology. The managing partner and founder of Union Square Ventures told CNBC that he is not rooting against the iPhone maker, but believes the biggest opportunities are in artificial intelligence and cloud computing.
And, Apple Inc. has not invested as heavily as Google and Amazon in those areas.
“The future of technology is more and more in the cloud. It’s more and more in machine learning and AI. It’s not really in the devices,” Wilson said. “[Apple] is very much a hardware company and a systems software company.”
On Tuesday, Apple shares closed up 1.64% at $95.18. Year to date, the stock is down over 11% while in the last one-year, it is down over 26%. the stock has a 52-week high of $132.97 and a 52-week low of $92.