Apple’s Soaring ASPs Are Enticing
Apple Inc. (NASDAQ:AAPL) is about to reap the rewards of scaling average selling prices (ASPs). Product demand has a history of stepping up its game as price tags climb.
Morgan Stanley analyst Kathryn Huberty is increasingly confident on the tech titan’s prospects moving forward following last week’s Cupertino event where Apple unleashed a revamped product line, including the hyped iPhone X. The verdict is a bullish one for the analyst, who ventures, “We see an across the board” for prices clamoring up the ladder.
In reaction, the analyst reiterates an Overweight rating on AAPL stock while kicking the price target up from $182 to $194, which represents a close to 23% increase from where the stock is currently trading. (To watch Huberty’s track record, click here)
Consider that the beginning price tags for the iPhone 8 beat out the iPhone 7 by $50, with the iPhone 8 Plus topping the 7 Plus by $30. Meanwhile, the iPhone X outclassed the analyst’s forecast by $50 with an initial price tag at $999. iPad Pro prices are likewise rising thanks to higher memory component expenses to the tune of a $50 jump, while also revealing bigger capacity 256 GB as well as 512 GB SKUs. The titan’s third edition of its Apple Watch Series now boasts LTE cellular connectivity, which has led prices to outperform past generations by $30- with the same happening with the new 4K Apple TV compared to the prior models. Huberty even points to a rise in the price of two-year AppleCare contracts for the iPhone that have seen an over $20 boost.
Subsequently, the analyst increases her ASPs for fiscal 2017 as of October, lifting her iPhone expectations by 5% to $784, iPad price projections from $446 to $450, Apple Watch price forecasts from 4393 to $401, all while taking services revenue up 1% “to account for the higher AppleCare pricing.” Net-net, Huberty is taking up her fiscal 2018 revenue expectations from $288 billion to $301 billion, which now soars 14% ahead of consensus of $263 billion.
“Apple is an aspirational brand offering high quality, innovative products at a premium price. As a result, the company escapes the typical trend of declining prices that drive demand for other devices. In fact, demand for iPhone is directly correlated to the direction of ASPs – higher prices, higher demand and vice versa.,” asserts Huberty.
Notably, the tech titan’s most robust iPhone unit growth cycle of the last five years running also correlated to the most meaningful escalation of ASP, with fiscal 2015 seeing 11% growth, as well as with the new bigger iPhone 6 Plus screen. “Second, when Apple launched cheaper iPhones, 5c and SE in FY13 and FY16, demand disappointed and iPhone unit growth decelerated at a faster clip than any other year […] Lastly, despite a $20 price increase to help digest increased costs associated with dual camera technology in the iPhone 7 Plus, the product was constrained through the end of CY16. In fact, iPhone ASPs rose 1-2% through F3Q17, boosted by rising iPhone 7 Plus mix, helping to re-accelerate unit demand from the FY16 lows,” the analyst highlights.
Most voices out on Wall Street echo Huberty’s conviction, with TipRanks analytics showcasing AAPL as a Buy. Out of 31 analysts polled by TipRanks in the last 3 months, 23 are bullish on Apple stock while 8 remain sidelined. With a return potential of nearly 10%, the stock’s consensus target price stands at $173.89.
Micron to Gain Thanks to Great DRAM/NAND Supply/Demand Picture
Times are changing for the DRAM chip market, and Micron Technology, Inc. (NASDAQ:MU) is ready to prove to investors that it can take advantage of better DRAM/NAND demand along with advantageously low supply.
Evercore ISI analyst C J Muse makes quite a strong bullish case, maintaining a Buy rating on shares of MU while lifting the price target from $40 to $50, which implies a 38% increase from where the stock is currently trading. (To watch Muse’s track record, click here)
With the chip giant poised to capture $5 in EPS by the end of this year, which is substantially higher than this time of fiscal last year’s mere $0.25, the analyst cannot help but ask: “Is it truly different this time or does all of this simply portend a cyclical peak?”
“We continue to point investors to the ‘sustainability’ of the current DRAM cycle,” elaborates the analyst, “led by” key factors, including better demand; “weighed down” supply; and “improving NAND competitive positioning in the move to 3D” (which Muse translates to mean EPS and free cash flow could keep going up next year. With this in mind, the analyst projects $7.20 in EPS for next year with free cash flow per share of $5.00.
Muse explains, “As investors begin to believe in a longer and stronger cycle that can sustain elevated earnings, look for shares to move higher. Into earnings, we look for another beat and raise, with Aug Q’s annualized earnings approaching $8 (if not more) and Nov Q even higher as management confirms a still very healthy supply/demand setup for both DRAM and NAND.”
Moreover, there is a new CEO in town for the chip giant, and the analyst expects Sanjay Mehrotra will focus a “sustained emphasis” upon “execution, improving competitive positioning, and cleaning up the balance sheet.”
“So yes, this time is different,” surmises Muse, who believes: “Memory is structurally more important. Micron is closing the gap with Samsung. The DRAM oligopoly is cash-cowing DRAM and focused on investments in the faster-growing 3D NAND market. And yes, DRAM capex is moving higher, but this reflects rising capital intensity – not acceleration in capacity.”
Wall Street is overwhelmingly putting its chips behind this chip giant, as TipRanks analytics exhibit MU as a Strong Buy. Based on 20 analysts polled by TipRanks in the last 3 months, 18 rate a Buy on Micron stock while 2 maintain a Hold. The 12-month average price target stands at $43.47, marking a nearly 21% upside from where the stock is currently trading.