Morgan Stanley and Nomura analysts on Friday raised their price targets for Apple stock as the tech giant's shares continue to surge.
At the same time, Apple's dependency on the iPhone for earnings has declined, with services and wearables now constituting 27% and 37% of profits, Morgan Stanley pointed out.
The increased target is based on a higher full-year 2021 revenue base, increasing peer-driven price-to-earnings multiples and the separation of Apple's wearables, home and accessories products from the rest of its established hardware business, with a new and distinct multiple assigned to that business.
Morgan Stanley's implied P/E target was upped on this basis from 19.1 times to 22.2 times. A P/E ratio is an important metric used by traders to gauge the value of a stock.Nomura's price target increase was based on strengthening iPhone demands and orders suggesting that the iPhone 11 cycle will carry through 2020, with wearables offering an extra boost.
However, Nomura analysts suggested that Apple's current P/E ratio of 21 times earnings, up 4x since the iPhone 11 launched and 7x above its five-year average, was based primarily on market anticipation of a pending "5G supercycle," which may be misguided. "We expect the $40-80 incremental BoM cost to a 5G phone to be a barrier to adoption," the note said, adding that "no link in the value chain — consumers, suppliers, operators, or Apple itself — is likely to shoulder that cost burden."
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