JP Morgan Keeps Apple as a Top Pick, Sees 16% Further Upside

In the first five minutes of trading Monday morning, Apple Inc. (NASDAQ: AAPL) added nearly $20 billion to its market cap. Apple created a company bigger than Hewlett Packard Enterprises or MGM Resorts in about five minutes.

If a J.P. Morgan analyst Samik Chatterjee and his team are right, the juggernaut will keep on rolling in 2022. In a research note released Monday morning, Chatterjee reiterated an Overweight rating on Apple stock and lifted the 12-month price target from $180 to $210, signally more than 16% further upside. Apple also retained its status as a top pick for 2022.

The short version of the analysis is that Apple is going to sell more iPhone 13 models than current lowered estimates foresee and that a new lower-priced iPhone SE expected early next year will raise iPhone sales projections even higher.

The analysts think that “most of the revenue and earnings upside realization associated with the iPhone 13 cycle is still to come.” The coming 5G-capable iPhone SE is expected to drive upgrades from an estimated 300 million owners of older iPhones and 1.4 billion owners of low- to mid-priced Android phones.

The price point for these smartphones is around $400, and only about half of them have 5G capability. But these cheaper devices account for about 75% of global smartphones. J.P. Morgan’s analysts estimate iPhone SE sales of 30 million units in Apple’s 2022 fiscal year (ending in September), pushing total iPhone sales to 250 million years for the year. Apple shipped 240 million iPhones in fiscal 2021, and J.P. Morgan’s prior estimate for 2022 sales was 246 million units. Chatterjee and his team estimate that the iPhone SE will add about $10 billion to Apple’s fiscal 2022 revenue, or about $0.15 in earnings per share (EPS).

The analysts have also raised their EPS estimate for 2022 from $5.95 to $6.00. They raised their forecasts for fiscal 2023 from $6.60 to $6.70 and for 2024 from $7.15 to $7.25.

J.P. Morgan also expects double-digit earnings growth based on the “transformation of the company to Services, growth in the installed base, technology leadership, and optionality around capital deployment.” In the long-range outlook, Services revenue rises from $68.4 billion last fiscal year to $83.1 billion in 2022 and $101.7 billion in fiscal 2023. iPhone revenue is expected to slip slightly in 2022 due to parts and supply chain issues, from nearly $192 billion in 2021 to about $191 billion, before rising to $195.5 billion in 2023.

Chatterjee and his team make no mention of two of the hottest technology topics around these days: the metaverse and autonomous driving. In a blog post Monday morning, Loup analyst Gene Munster, a long-time Apple watcher and Apple bull, projects a fiscal 2023 share price of $250.

Munster thinks the augmented or mixed reality headsets Apple is working on, and that many people believe will be introduced next year, will be a big hit with consumers, but the timing is probably a ways off. As for autonomous driving, he thinks Apple will come out with its own car but that is “likely more than five years away.”

All that is to say the J.P. Morgan was probably right to leave both out of its calculations for next year and even for the next couple of years. Metaverse and autonomous cars are going to be big noises, but not yet.

The major market indexes dipped into the red about an hour after the opening bell Monday, likely due to concern over the spread of the Omicron variant in the United Kingdom. Apple stock traded down by about 0.1% at $179.25, after setting a new intraday high of $181.80 earlier. The stock’s 52-week low is $116.21, and its consensus price target is $170.78.

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