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Apple Analysts Say It's 'Difficult For Investors To Step Away' With Further Upside Potential

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Apple Analysts Say It's 'Difficult For Investors To Step Away' With Further Upside Potential

Despite the record run, analysts are unequivocal on further upside for Apple Inc. (NASDAQ: AAPL).

BofA Securities analyst Wamsi Mohan reiterated a Neutral rating on Apple, citing balanced risk-reward, but increased the split-adjusted price target from $117.50 to $140.

JPMorgan analyst Samik Chatterjee maintained an Overweight rating and increased the price target from $115 to $150.

FOMO, TINA Or MOMO? Apple shares continue on an unprecedented strong run of outperformance versus the broader market, Mohan said in a note. Fear of missing out, or FOMO, has yet to set in, given the relatively quick rerating and concern that fundamentals can't support continued upside, the analyst said, citing the firm's conversations with institutional investors.

The upside is partly attributable to the fact that there is no alternative, or TINO, to Apple's cash flows, the analyst said, citing some investors. However, there are other mega caps with strong cash flows as well.

An analysis of the past weeks of trading data suggested a strong inflow from retail investors, suggesting momentum, or MOMO, is the strongest attributable factor.

"We believe that momentum can cut both ways especially given risk to Sep/Dec qtr estimates (particularly on high end iPhones) but also recognize that in the short term momentum can trump valuation," Mohan wrote in the note.

See Also: Apple Analysts See 'Once In A Decade' Opportunity Ahead Of iPhone 'Supercycle'

Potential Upside Drivers, Upcoming Catalysts Are Compelling: The latest upward estimate revisions for Apple have been driven by a rise in consensus iPhone volume expectations for 2021, Chatterjee said. Investors are looking for further upside, thanks to optimistic feedback from the supply chain of much high build forecasts.

The analyst sees a stronger volume cycle relative to current investor expectations due to a compelling pricing strategy, comprising wider range of price points. Investors are banking on potential revenue/earnings upside to justify the premium multiple.

Tailwinds from work-from-home and enterprise demand to tablet and laptop sales could be another driver of revenue/earnings upside relative to consensus, the analyst said.

That Apple shares crossed the $2 trillion valuation mark in a year with significant COVID-19 disruption testifies to the recurring nature of not only its services, but also its products. Therefore, investors are now willing to pay a Services-like premium on the entire earnings stream and a modest premium on account of expectations for further revenue/earnings upside.

"While we acknowledge that the valuation is no longer an easy entry point into the shares, at the same time, potential upside revenue/earnings drivers, as well as upcoming catalysts, will make it difficult for investors to step away from the shares," Chatterjee wrote in the note.

AAPL Price Action: Apple shares rose another 3.9% to close Tuesday at $134.18.

Latest Ratings for AAPL

DateFirmActionFromTo
Oct 2020Piper SandlerMaintainsOverweight
Oct 2020Credit SuisseMaintainsNeutral
Oct 2020Morgan StanleyMaintainsOverweight

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