Apple Sets New All-Time Highs in Post Earnings Buying Bonanza

Investors continue to lap up the Apple (NASDAQ:AAPL) phenomenon. In the three weeks that have passed since Apple released its FY 2012 first quarter bumper earnings, the stock has seen tremendous buying interest, rallying more than 20% and crossing the psychologically important $500 mark. As the stock inches closer to our $550 price estimate, we look at some of the reasons why we believe the rally should sustain itself and take the stock to new all-time highs.

See our complete analysis of Apple here

iPhone

Apple’s flagship product, the iPhone, contributes more than 50% of our price estimate and hence drives the company’s overall value. The company has been posting an average annual growth of close to 90% in iPhone sales over the past three years. Last quarter saw the iPhone set a new quarterly record of 37 million unit sales, with the phenomenal iPhone 4S’ success playing a big role.

Apple’s mobile market share has increased from what was once nil not so long ago to around 5.4% in 2011, by our estimates. As Apple expands its operations overseas, adding new carriers and selling the iPhone in emerging markets such as China, the opportunity that lies in front of it is immense. (see Apple Can Penetrate Emerging Markets by Riding Side Saddle with More Carriers) We believe that Apple will continue to lead the smartphone surge forward, setting new standards of innovation and meanwhile selling iPhones by the truckload. The release of a LTE-enabled iPhone later this year should act as the next big trigger for Apple’s stock.

While Apple will continue to increase its market share at a good pace, its rise is capped by the fact that it doesn’t have a low-end phone to meet the demands of a bigger chunk of the population. However, we believe this should not matter much as long as it is able to command a hefty premium for its incredibly popular smartphone. How popular the phone has turned out to be can be gauged from the fact that Apple accounted for close to 50% of overall mobile revenues and a staggering 80% of overall mobile profits in Q4 2011 despite having only a small fraction of the market in terms of units sold. (see Apple takes Lion Share of Mobile Industry’s Revenues and Profits)

iPad

The iPad debuted in early 2010, spawning a new market segment of mobile devices and sending Apple’s stock even higher. Many competitors have tried to enter this still relatively nascent market segment but none have come close to threatening the iPad’s dominance. Even the much touted Kindle Fire, a 7-inch Amazon tablet which was released last quarter, made hardly a dent to the iPad which set a new record of more than 15 million unit sales in a single quarter. The iPad is the second most valuable business for Apple after iPhone and accounts for just under 13% of our Apple price estimate, but if the nascent market sees an explosion in demand over the coming quarters, the iPad could command a bigger chunk of our estimates.

According to various reports out in the media, Apple is readying a LTE-enabled iPad 3 for launch in March. ^[1] ((Verizon, AT&T To Sell 4G iPad, Wall Street Journal, February 14th, 2012)) With both Verizon and AT&T providing a much better LTE coverage in many markets across the U.S, we believe that Apple will be able to cash in on the increasing demand for high-speed data services. The success of an LTE-enabled iPad will set Apple’s stock up nicely for the next big iPhone launch.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Apple to Announce iPad 3 First Week in March, AllThings D, February 9th, 2012 [↩]