Needham & Co.’s Charlie Wolf this morning raised his price target on Apple(AAPL) shares to $540 from $450, while reiterating a Buy rating on the stock.
Wolf sees increased value in the iPad, especially, but also the Mac and iTunessince he last performed a valuation evaluation, if you will, on Apple, back in February.
For example, the iPad business is now more valuable, in his view, because it “should capture a materially larger share of the tablet market than we previously forecast.”
Wolf sees the Mac business more valuable based on the “halo” effect from the iPad, rather than the iPod, and after calculating the growth of app sales, he thinks iTunes is much more valuable than he’d estimated. Oh, and then there’s the nearly $80 billion in cash. That raised his valuation estimation as well.
The iPad, then, now accounts for $65.62 per share in Apple value, or 12%, up from 9.6% previously. iTunes and the App Store are worth $27.52 per share, or 5%, up from 3.4%. The iPod is now only worth $3.50 per Apple share, or 0.6% of Apple’s total value, down from 1.2%. The Mac is worth $63.92, almost 12%, up from $48.79, or 11%, previously.
The iPhone’s valuation per share goes up, but not as dramatically, to $265.86 per share from a prior $240.09 per share. Wolf acknowledges it makes up almost half of Apple’s value.
Wolf explains that his update to the iPad’s value reflects the failure of competing tablets. Like the iPod before it, he thinks the iPad will maintain a dominant share, even though he expects competing tablets to be brought to market for some time to come:
The reason for the increase stemmed from the failure of tablets introduced this year to gain any traction in the market place. In the period following our February report, the tablet market has been inundated with new models—the Xoom running on Android’s Honeycomb operating system, RIM’s Playbook running on the company’s QNX operating system, HP’s Touchpad running on Web OS and many others. All of them have been greeted with a yawn and lackluster sales. None have been able to undercut the aggressively priced iPad, because the iPad’s component costs are materially lower than those of competing tablets. In the case of tablets, the only thing that matters—that turns what’s otherwise a slab into a versatile device—are the apps. And the applications available on the tablets introduced this year number at best in the hundreds. In comparison, more than 100,000 applications are available on the iPad. Finally, some of the tablets, such as the Xoom and Playbook, were rushed to market half-baked with crucial features missing. We believe the iPad will experience an erosion of market share if only because an avalanche of competing models will continue to inundate the market. But future tablets are more likely to steal share from one another than from the iPad. Unlike smartphones, the distribution of tablets will occur mostly in consumer electronics chains, not carrier stores. Apple’s competitive advantage in this regard is its chain of Apple Stores, now 328 in number and growing.
And for those who generally despise analysts and their price targets, Wolf offers a succinct defense: “There’s scant evidence that the market itself has paid much attention to analysts’ price targets in recent years. But we believe the valuation exercise is one worth undertaking if only to calibrate the difference between Apple’s current share price and the price our model predicts for 12 months in the future.”
Apple shares this morning are up $1.93, or half a percent, at $379.30.
