Apple Poised to Move Higher as Wall Street Takes Notice

Chris Ciaccia - The Street  DEC 04, 2012 3:42 PM

Wall Street is starting to take notice that Apple has much more room to run.

 


There may be a few winners under the Christmas tree this year and it looks as if Apple (NASDAQ:AAPL) might be one of them. Wall Street is starting to take notice.

A couple of Wall Street analysts recently released research notes saying that Apple is poised to move higher, particularly as the holiday shopping season continues in full force. The iPhone 5, iPad and iPad mini are seeing healthy demand and supply is improving, particularly for the iPhone 5, noted Sterne Agee's Shaw Wu. He rated Apple a buy with an $840 price target.

"From our latest supplier checks, we continue to pick up improving yields and availability on iPhone 5 and thus improving profitability," Wu penned in a research report. "In addition, we have noticed much better availability in AAPL's retail stores, online store, as well as third-party partners," he said later. He now believes Apple could sell more than the 45 million to 46 million iPhones this quarter, particularly as Apple enters China. Wu raised his iPhone unit forecast from 46.5 million this quarter to 47.3 million.

A look at Apple's Web site confirms this, as ship times have improved from two to three weeks in mid-November to just two to four business days for all models and all carriers. On the other hand, demand for the iPad mini is still outstripping supply. A look at Apple's site shows that ship times for the smaller iPad are at two weeks.

Apple recently announced that the iPhone 5 would be coming to China Dec. 14 and the new iPad and iPad mini would be coming Dec. 7.

UBS analyst Steven Milunovich said he believes Apple is poised to move higher as earnings growth moves the stock higher, helped by new products and increased gross margins.

"Although we don't expect much multiple expansion, new products still have the potential to drive earnings growth and create value by earning cost of capital," Milunovich wrote in a research note. He rated Apple buy with a $780 price target.

As Apple builds out its ecosystem of products (iPod, iPhone, iPad, Mac), users tend to remain with one brand, making it "sticky." Hedge fund manager David Einhorn noted this fact earlier this year at an investment conference, thanks in large part to iOS and iCloud, Apple's mobile operating system and cloud computing offering. Einhorn recently pared his position in Apple, but still holds a good chunk of the Cupertino, Calif.-based Apple.

The recent increase in optimism is evident elsewhere on Wall Street, as some believe Apple's recent sell-off was vastly overdone. Topeka Capital Markets analyst Brian White called the sell-off in Apple shares "insanely insane" given the valuation at which Apple shares were trading.

Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) have had some success in the tablet and handset markets, but by and large it's still Apple's game. Kleiner Perkins partner Mary Meeker has done her traditional year-end look at the state of technology, and one of the slides shows Apple is poised to dominate this holiday season.

Children aged six to 12 tend to dominate parents spending for Christmas, and Apple is all over their lists to Santa. About 48% of this age group wants an iPad, 36% want an iPad mini, surprisingly the same percentage as the iPod Touch. One in three children this age want an iPhone for Christmas.

If Meeker's presentation is correct and Wall Street analysts' aren't being overly optimistic, Apple could have a lot higher to go as we move into 2013.