A New 700 Club: Banking on Another Apple Miracle
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The Fiscal Times
March 19, 2012

Wall Street is calling it the “700 Club”– the group of buy-side analysts who have gone public in recent days with projections that Apple’s stock (which closed Friday at $585.57 a share) will soar to $700 or more a share. It may take a few prayers, but so what? Even though the price is still $100 above its current share price, no fewer than five analysts jumped aboard Apple’s bandwagon last week, just as the first of the company’s new iPads arrived in stores and made their way into the hands of eager consumers.

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Piper Jaffray was the latest addition to the 700 Club, when analyst Gene Munster boosted his price target on the stock to $718 from $670 previously. Munster had previously expected the iPad to lose market share next year; now he’s calling for 2013 iPad sales to jump 44 percent from forecast levels this year. Even if rival tablets catch on, Piper Jaffray still expects Apple to own 60 percent of the market by 2015.

Of course, the Apple bulls don’t rest their case solely on the prospects for the brand-new iPad and its future incarnations. There is also the iPhone. Munster boosted his outlook for both the number of units sold and market share, after Apple reported an astonishing 25 percent surge in sales of its iPhone 4S in its fourth quarter. Indeed, Munster now expects Apple’s share of the smartphone market to rise from a previous estimate of 20 percent in 2013, to 23 percent that year and 33 percent by 2015.

Other analysts who are banging the drum in support of Apple 700 include Mike Walkley of Canaccord Genuity (target: $710) and Katy Huberty of Morgan Stanley (target: $720). Such a move seems almost inconceivable, given that Apple has already soared 44 percent this year from its December 30, 2011 close of $405 a share. If it does rally above $700, that would mean it has gained more than 72 percent in a single year – an astonishing feat for such a large and well-established company.

By some measures, that would leave the company richly priced. For instance, the company’s current book value is only $82.45 a share. On the other hand, Apple’s earnings growth has been so astonishing that its valuation is well in line with the market. Apple trades at only 16.7 times trailing 12-month earnings, and 13.6 times prospective earnings. That’s not pricey, by any stretch of the imagination, particularly when measured against both the growth Apple is recording and the stock’s momentum.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.