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Apple: Piper Ups Target to $910; First Trillion-Dollar Stock?

Tiernan Ray

Uh-oh, it’s the battle of the Apple (AAPL) price targets.

After Brian White with Topeka Securities yesterday set a $1,001 price target on the stock, Piper Jaffray’s Gene Munster this morning raised his price target from $718 to $910, writing that it’s possible the stock could go to $1,000 or more a share, with upside from an television set, at some point.

The $910 price target is a 12-month target, as is the case with most analyst targets. But, writes Munster, “We believe shares of AAPL will reach $1,000 in CY14, which would imply a roughly 1 trillion dollar market cap, the first in history.”

(Apple had 941.6 million shares outstanding at the end of the December fiscal Q1.)

Munster’s target is based on a 14 times P/E multiple of his calendar 2014 EPS estimate of $65.04. That’s not including Apple’s projected cash per share at that point. (Munster does not offer an estimate.)

“While some investors believe the biggest issue for AAPL to get to $1,000 is the market cap along with excessive investor exuberance, which we address in this note, we believe the real story is earnings growth,” he adds.

Irrational exuberance is “not a problem” for the stock, writes Munster, because it’s cheap.

As far as where the next $400 billion in market cap might come from, he observes that dollars invested in U.S. tech companies could rise 5% per year over the next three years. Apple, he thinks, can capture half that market cap increase, down from 84% of the capitalization increase in the last four years.

Income funds coming into the stock might make up some of that increase, but only a little bit, perhaps 5% to 10%.

The real swelling of Apple’s capitalization would be share shift in investment from you-know-who:

Second, the companies we consider to be the 10 most relevant competitors to Apple (Samsung, HTC, RIMM, NOK, SNE, DELL, HP, MSFT, INTC, GOOG) represent nearly $1 trillion in market cap today. We believe 20% of that value, or ~$200 billion could shift to Apple through 2014. Thus there is potential for Apple to repeat history and add another $400 billion to its market cap. At a $1,000 share price (roughly $1 trillion in market cap) Apple would represent 26% of the total US tech market cap from 17% today.

As to what Apple will earn to justify all that, Munster sees the company increasing smartphone share and maintaining tablet computer share:

For CY12, we expect $44.76 in EPS, 27% y/y growth. For CY15, we expect $80.18, 23% y/y. The most important market is the smartphone market, where we estimate Apple had 19% share last year, which we expect to go to 33% in CY15, with ASP’s going from ~$580 in CY11 to an estimated ~$435 in CY15. Moving forward, we believe the smarpthone market is boiling down to essentially two players at scale: Apple and Samsung […] ltimate shift of the third generation iPad to a $399 price point in CY13 after the fourth generation iPad is released should enable the company to sell a tablet with a retina-display screen for under $400. Second, we believe that Apple will launch an iPad with a smaller screen at a sub-$300 price point. Given our iPad sales assumptions, we believe that Apple will have 60% tablet market share in CY13 from 64% in CY12. We believe Apple will have 55% market share in CY14 and 60% share in CY15. The reason we expect growth/share to accelerate in CY15 is that we believe the iPad will become more widespread as both an enterprise and education device.

Munster adds that Apple could add $4 per share to his 2015 estimate of roughly $80 in net profit through a television set, though he’s not formally modeling that at this point.

Using a 14 times multiple of $84 would put the stock above $1,000, he writes. Specifically, $1,176.

Prior to White’s note, and Munster’s today, there had been some “soft” targets, if you will, from analysts, such as UBS’s Ittai Kidron’s mention of a $900 hypothetical valuation back on March 23rd, and Morgan Stanley’s Katy Huberty‘s “bull case” scenario for $960 per share back on March 14th.

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