What: Shares of technology giant Apple (NASDAQ:AAPL) inched higher on Friday by $0.62 to close at $127.08, an all-time record high that values Apple at $740 billion, about $350 billion more than the No. 2 most valuable company in the world, ExxonMobil. The impetus for the move was a substantial price target increase from research firm UBS.
So what: According to UBS covering analyst Ben Thompson, the reason behind his price target lift to $150 from $130 stems from the growth of Apple's platform. As Thompson explained in a research note to investors, devices led Apple to a roughly $700 billion valuation, but Apple's platforms and ability to strike partnerships that center around its platforms are what could allow it to grow into a trillion-dollar company someday. Thompson does mention the Apple Watch as a "subservient appendage" to the iPhone for the time being, but could see it becoming a commonplace tool for payments and other services in the future.
In addition, Thompson based his price target hike on Apple's fundamentals. Per Thompson, at $150 per share Apple's P/E excluding its cash would be 13.3, which is about a 5% discount to the market. Thompson also compared Apple's valuation now with its peak in September 2012 noting that shareholders get a dividend and shareholder buybacks now which equal about a 6% shareholder yield versus 0% back in September 2012.
As a refresher, last week Canaccord Genuity upped its price target to $145 on Apple.
Now what: The question that we have to ask is whether a $150 price target is sustainable. In other words, can Apple reach a valuation that's approaching $900 billion?
The quarterly results would certainly suggest that. In its holiday quarter Apple sold a record 74.5 million iPhones, and based on Canaccord Genuity's data analysis captured 93% of all smartphone profits. It's almost impossible to argue against the idea that Apple has a cult-like following. With its products regularly a leader in brand loyalty Apple has little to worry about when it comes to encouraging consumers to buy its products.
But, as I mentioned last week, Apple's greatest enemy is likely itself. If its products become so well designed or pricey that consumers begin to skip upgrade cycles then investors are going to have a problem. Let's be clear, Apple has more than enough cash and ideas up its sleeve to weather any recession or technology cycle thrown its way. Yet, the fact remains that its biggest enemy is its own products over the long run.
Ultimately, I believe Thompson makes a compelling case and I do believe Apple has the ability to hit $150 per share. Having supporters like Carl Icahn helps, as does Apple's hefty shareholder returns in the form of buybacks and dividends. The real catalyst that investors are waiting for that will determine whether $150 is a near-term possibility or something we should be looking at on the horizon is the launch of the Apple Wach. Until then, I remain bullish on Apple.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
The Motley Fool owns shares of, and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.