Citi raises its Apple price target to $265

From a note to clients by Jim Suva snagged by CNBC:

Apple shares will rally because the company will benefit from falling component costs for its phones, according to Citi Research.

"We increase our financial model primarily due to higher ASPs [average selling price] & stronger gross margins given the consumer preference for higher memory configurations of iPhones coupled with the new falling memory prices," analyst Jim Suva said in a note to clients Monday. "We believe Apple shares are now setup as an attractive value investment with right-sized expectations."

The analyst said memory represents 10 percent to 15 percent of the component costs in base iPhone models. But when a consumer buys a higher memory configuration that costs $100 more, it costs Apple only an incremental $20, he said. He noted flash memory prices are down 18 percent since March.

"Our checks suggest solid demand for iPhone XS & XS MAX and importantly most consumers opting for higher memory iPhone configurations," the analyst said.

Suva raised his Apple fiscal 2019 earnings per share estimate to $14.43 from $13.92 versus the $13.61 Wall Street consensus.

Maintains Buy rating, raises price target to $265 from $230. 

My take: Waiting to see the note. Meanwhile, can't help noticing that Apple had already overshot Citi's previous price target.

2 Comments

  1. Fred Stein said:
    I almost laughed when reading component prices, a short-term cyclical issue. Does that impact their long-term discounted cash flow model more than 1%?

    $265 sound right. It’s about 20X forward multiple. A year from now forward EPS will be even higher.

    0
    October 8, 2018
    • David Drinkwater said:
      Do you remember the backflips that Brian White did to justify his sky-high and numerically illuminated estimates?!?!

      Why not just do a sensible analysis and say, “look, these are my hard data, and my financial gut (sic) says the number should be higher: I posit X!”?

      0
      October 8, 2018

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