Apple could be first company to reach a $1 trillion market cap, analysts say

Apple is expected to launch the iPhone 8 in mid-September.

Apple Inc. is poised to become the first company to reach and even sustain a $1 trillion market cap, RBC Capital analysts said Wednesday.

Apple’s AAPL, +0.29%  stock has been soaring since it reported better-than-expected third-quarter earnings on August 1, while also assuaging some fears about an overreliance on iPhone sales, thanks to a surprise upsurge in iPad sales. That stock momentum has added $56 billion to the company’s market cap as of Tuesday, and RBC analysts are expecting it to continue as Apple heads into the launch of its expected iPhone 8 cycle in mid-September.

Apple has already had quite a stock rally, with shares gaining 11% in the past month, outperforming the S&P 500 SPX, -0.14% which has gained 2%. But RBC analysts see more upside, as Apple typically outperforms the markets 90 days before a product launch, with a median return of 15.6%.

Apple is expected to launch an iPhone 8 in September, which some analysts expect will create a ‘super cycle’ for the company, while others have said the launch is over-hyped and expressed concern about reported delays in the new OLED screen phone.

Outside of the product launch, RBC analysts see further upside for Apple coming from its recent strong gross margin performance, as well as improving sales in mainland China.

“We believe the fundamental reality remains that AAPL’s valuation is materially sub-par to what we anticipate is its long-term revenue and EPS potential,” wrote Amit Daryanani, lead analyst on the note.

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RBC Capital analysts have a base case of earnings per share of $10.50 in the next 12 months and a bull case of $12 or above. They reiterated an outperform rating and a price target of $176.

However, risks to the thesis include an increase in trade issues with China and issues with the new iPhone itself, as well as the timing of its launch.

Another overhang is Apple’s possible legal issues with chip supplier Qualcomm Inc.QCOM, +0.72% Qualcomm has accused Apple of patent infringement for the way in which Apple uses Intel Corp. INTC, +0.66%  chips in the iPhone. This week, the U.S. International Trade Commission said it would investigate the allegations, setting an end target date of 45 days after it starts the investigation.

However, Stifel analysts note that the investigation alone does not mean that Qualcomm’s claims have merit. And even if the ITC ruled against Apple, it would only affect Apple’s importation of iPhones in the U.S., and not international sales.

“While this should be monitored as a potential negative for Apple, we think this is further posturing by Qualcomm in efforts to pressure Apple into reaching an out-of-court settlement to its separate royalty case,” wrote Aaron Rakers, an analyst at Stifel.

Shares of Apple were down less than 1% in premarket trade Wednesday. The stock has gained 38% in 2017, while the Dow Jones Industrial Average DJIA, -0.28%  has gained 11.8%.

 

[“Source-marketwatch”]