Thursday, March 22, 2012

AAPL: Hilliard Ups Target to $660; Size Not a Problem Right Now

Hilliard Lyons‘s Stephen Turner this afternoon reiterates a Buy rating and raised his price target on shares of Apple (AAPL) to $660 from $575 to reflect Apple’s initiation of a dividend and stock repurchases, announced Monday, and to reflect higher iPad estimates stemming from the company’s disclosure the same day it sold 3 million units of the new model in its first weekend.

Turner increased his iPad estimate to 11 million for this quarter, up from 8.5 million units previously, and he thinks the company can sell over 60 million this fiscal year ending in September.

Turner thinks the payout announced will lend support to Apple shares and draw new investors:

What will the dividend do from an investment management aspect? First, it will make Apple shares available to those institutional accounts that simply require income. Many trusts, income funds and institutions have these stipulations. Second, the dividend yield could provide some level of support. For instance, if AAPL shares were to drop to $450 the dividend yield would increase to 2.36% (in line with the 10-year Treasury). The initiation of a dividend will, in our opinion, broaden Apple�s investor base and legitimize it as an �investment� vs. �speculation� by the general public.

Turner also doesn’t see immediate risk from the sheer size of Apple’s market cap, currently $562 billion:

Apple currently represents 4.40% of the S&P 500 Index. How much larger can the company get as a percentage of the S&P 500? Looking back at market capitalizations of other technology companies we found MSFT, CSCO, IBM and INTC at one point had a higher weighting in the S&P 500 Index than AAPL. We also note that their P/Es were sig! nificant ly higher on average during that time when compared to Apple�s (MSFT 65x, CSCO 130x, IBM 12x and INTC 40x). We believe with Apple�s reasonable valuation, growth potential, global footprint and talented management, its size will not become an issue in the nearterm. However, due to the Company�s large size, longer-term incremental revenue growth could be more difficult to generate and growth could slow.

Apple shares today fell $3.46, or 0.6%, to $602.50.

Fin

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