Another Wall Street firm is coming out to defend Apple after yesterday’s downgrade.
Credit Suisse initiated coverage of the company with a 100 page report titled, “The Most Valuable Company in the World?” Fortune reports.
CS rated Apple “outperform” and slapped a $500 price target on the stock. (It currently trades at $330.)
Here via Fortune are the bullet points of the big report:
- iPhone still the driver. Across the key smartphone success factors of software, services, product portfolio, distribution, brand, IPR, and chipset efficiency, we believe, three years after the launch of the iPhone, few competitors have managed to narrow Apple’s advantage. This means within this fast-growth industry (smartphone unit growth of 52%/32% in 2011/2012), Apple’s smartphone share should continue to rise to 20% in 2012 driving volumes of 72mn/112mn in FY11/12 with revenue of $47bn and $67bn.
- iPad—addressing a $120bn market LT. Our proprietary analysis for tablets (takes into account factors such as regression analysis for long-term computing demand, pricing by tier, and cannibalization of multiple industries) highlights that the tablet market could rise to $120bn by 2015. Within this segment, we believe Apple will dominate, given aggressive pricing, time to market advantage and a software edge, maintaining share as high as 50% long term. This means that iPad should become a $34bn business by FY12. Further, our proprietary BOM analysis implies that GMs for this business will expand to 35% by end-FY11 from around the 27% levels seen in FY10.
- Still room for an extra $10 in EPS. We believe that a low-end iPhone, greater push into emerging markets, and enterprise traction could add $10 of EPS. Even beyond this, we see scope for Apple to leverage its ecosystem and its current installed base of 200mn (rising to 700mn over coming years) with revenue from advertising, broadcasting or perhaps the TV business.
- Valuation. We arrive at our $500 target price using a combination of P/E, DCF, and HOLTTM analyses. On our CY12 estimate, Apple trades on a P/E multiple (ex-cash) of 8.9x, which we believe is inexpensive, given the potential for earnings growth of 46% over the next two years.
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