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Apple at $700 Isn't Crazy

More analysts are trying to keep pace with reality. Barclays boosted it price target on Apple (NASDAQ: AAPL  ) from $590 to $655, retaining its neutral rating on the stock. Bernstein Research pushed its goal from $615 to $700, also sticking to its bullish outperform rating on the consumer electronics giant.

Both analysts have their reasons for propping up their price targets. Bernstein feels that the inevitability of the larger iPhone, upgrade-friendly moves at wireless carriers, and even Apple's upcoming stock split make it more valuable. Barclays feels new products and Apple's bottom-line resilience through the first half of this fiscal year warrant a higher target.

They are being honest, but they may not be telling the whole story. After all, neither rating changed. They are simply adjusting to a stock that has appreciated sharply in recent weeks. With Apple starting off the day north of $625, it's not as if Bernstein's $615 could be considered bullish. It's not as if Barclays at $590 could be considered equal weight.

The higher price targets may be sending Apple stock to its highest level since October 2012, but it also makes sure that Barclays and Bernstein are adjusting their price targets ahead of next week's Apple Worldwide Developers Conference. 

No one is expecting any major iPhone news. That will likely come at some point over the summer. However, there's already chatter that Apple will announce smart home initiatives at the annual powwow for iOS and MacOS developers. There's also the worst-kept secret about Apple's potential $3 billion deal for Beats Electronics that could very well be announced during the conference.

Apple can use the catalysts. Analysts see revenue climbing just 6% this year and 7% in fiscal 2015. They see earnings climbing at a slightly higher clip, but a lot of that is just making up the lost ground for when margins contracted through most of last year. There's nothing wrong with seeing sales and profitability going in the right direction, but Apple investors are used to headier growth.

Apple at $700 would be a multiple of 16 based on this year's projected earnings and less than 15 times next year's multiple. Back out Apple's ample cash and the multiples drop into the low teens. That's not cheap if Apple fails to land a hot new product and we're eyeing sales growth in the mid-single digits and margins possibly under pressure as mobile gets even more competitive. However, all it takes is a single hit in smart home, wearable computing, or some other disruptive technology to turn a fairly priced Apple into a screaming value where $700 will be the floor -- and not the ceiling.

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Comments from our Foolish Readers

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  • Report this Comment On May 28, 2014, at 11:00 PM, smurfffool wrote:

    $700 for AAPL isn't crazy. What's crazy is that we (stockholders) haven't seen it in years. If TC and the Board had run the company properly, we would be talking about $900 being crazy RIGHT NOW!

  • Report this Comment On May 28, 2014, at 11:42 PM, singaporenick wrote:

    TC has run the company brilliantly which is why the share price has risen so much this year!

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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