How Long Before Apple Caps a Trillion?

Nicholas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

During the third quarter of the calendar year 2012, there were several stories predicting Apple (NASDAQ: AAPL)’s road to $1000 per share. Nearly all of them were positive about the prediction, with some placing values beyond the magic thousand. This would have literally boosted the world’s largest company by market capitalization to the region of one trillion dollars.

Nonetheless, that goal is now becoming a pipe dream with several analysts reducing their price targets on the stock. Indeed, according to a recent report summarized by CNN’s Fortune Magazine, the average price target is now capped at just $740. The stock currently trades at about $525 per share with the market cap hovering below the $500 billion mark.

So, here comes the challenge. Can Apple double up to above the $1000 mark in the foreseeable future? Analysts still believe the stock will likely outperform the market, and have a Buy rating attached to their various target prices. However, following the ramp in iPhone sales during the December quarter, nearly all the analysts see a downside in expected iPhone sales for the next quarter and consequently FY13. The analysts have also revised downwards their estimates on revenues and earnings for the current campaign.

Subsequently, Apple’s revenue growth rate is on the decline, slowing down to about 25 percent year-over-year, which is unlikely to help much in hitting a market cap of one trillion dollars. According to reports, Steven Milunovich, an analyst at UBS AG reduced his estimate for Apple's EPS FY13 from $51.50 to $47 last month. Barclays Equity Research analysts also cut down their FY13 EPS from $50.92 to $49 a few days ago and reduced revenues by $1.3 billion.

In other news, Evercore Partners analysts, Rob Cihra and Edison Yu cut their 2013 EPS estimates for Apple from $50.33 to $47.06. While Raymond James & Associates reduced their price target from $700 to $690 after cutting down March quarter iPhone sales from 42 million to 37 million. Bank of America Merrill Lynch has also cut down its price target for Apple from $780 to $720 per share.

Nonetheless, Apple is still the cheapest stock when compared to its rivals. Based on its mean price target of $740, Apple still trades at a discount of about 29 percent from its average target price, as valued by leading analysts. Google (NASDAQ: GOOG), on the other hand, which is a formidable candidate to rival Apple on the road to $1000 per share, trades at a discount of about 8.37 percent from its mean target price of $800.

Under the current scenario, there is no question of, who is likely to get to $1000 first. Google is only $267 away. However, the search engine giant is not as close to reaching a market cap of one trillion dollars as it stands at $240 billion, which is less than half of Apple’s market cap. Nonetheless, Google still plays the role of “a thorn in the side” as far as Apple’s future plans on iOS are concerned. Android OS has indeed taken the market by storm over the last two years. The internet kingpin is likely to play a major role in retarding Apple’s journey to $1 trillion worth of market cap.

Bottom-line

Apple was once likened to a drought-resistant crop following its rally during Steve Jobs’ time. However, as the company grew over time, it became susceptible to global challenges. Put it this way, when facing a series of obstacles, a small stone is likely to travel longer distance than a huge stone without major interferences. The stock could hit a new high, but in a matter of months, slip again by about 30 percent as witnessed recently. This seasonality is what is going to derail its outright rally.

Apple has now become more sensitive to market risk than before. A good example is the nature it was affected by the slowdown in supply chain production capacity following a massive wave of demand. Secondly, investor perception has now become a major factor, almost competing with fundamentals on the company’s stock outlook. Apple could take two to three years before it gets anywhere near $1 trillion in terms of market cap, leave alone surpass it. 


Nmaithya has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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