Apple (AAPL) – Get Report shares surged Monday and the reason shouldn’t surprise anyone. The company is unveiling its iPhone 12 Tuesday, but there is a lot of information incorporated into the stock move.
The stock rose more than 6% to about $124 a share by 2 PM EDT Monday. After a nasty correction in September, when the stock fell as much as 20% — a technical bear market — investors have been willing to pay a roughly 30 times multiple on the next 12 months of earnings. That’s against analysts’ estimates of 8% compounded earnings growth for the next several years. However, analysts TheStreet has spoken with admit short-term and long-term earnings estimates have significant upside across businesses, legacy hardware, wearables and services.
The stock move Tuesday brings Apple’s earnings multiple to just under 35, which may seem stretched to some. Bullish Apple analysts around The Street note that upside 5G sales estimates are a plausible scenario and argue that some analysts are too conservative in their forecasts.
The iPhone 12 release is expected to feature more 5G capability than previous versions. Apple’s iPhone business has seen a significant downward bend in its innovation curve in the last several years and although the 5G cycle is an industry growth driver rather than an Apple-specific one, it’s a strong tailwind that Apple is happy to accept. The lofty multiple may remain in place as stock gains potentially moderate if analysts soon revise hardware estimates on the back of a successful iPhone 12 launch. Apple shares tend to post muted moves after these product events, which often involve heavy anticipation.
Analysts currently expect Apple to sell about 75 million iPhones in each of the next few quarters, up from about 65 million expected just a few weeks ago. Analyst