Apple tops $132 after Barron’s predicts further gains

“Apple’s success with bigger iPhone screens has helped expand its stock valuation. The shares have climbed to $129 from a split-adjusted $76 since we recommended them nearly a year ago,” Jack Hough writes for Barron’s. “They now go for 14.8 times projected earnings for the next four quarters, up from 12 times.”

“The last time Apple hit a major peak, at about $100 in September 2012, its shares had a slightly lower price-to-earnings ratio than now, and a more diversified business mix, with iPhones making up barely half of sales, versus closer to two-thirds now. The shares went on to tumble 40% in less than a year. Might Apple now be topping out again?” Hough writes. “Unlikely. Look for the stock price to rise to $160 over the next year for a 25% return including dividends. Expect a big dividend hike when the company updates its capital-return program, likely in April. The current yield looks undersized at 1.5%.”

“Apple trades at an enterprise value — a measure that adjusts the stock market value for debt and cash holdings — of 10.1 times projected free cash flow for calendar 2015. That puts it on par with Hewlett-Packard , and makes it 11% cheaper than Microsoft. Companies like General Mills and Procter & Gamble), which investors flock to precisely for the ability to turn out steady cash, carry enterprise values closer to 25 times free cash flow.,” Hough writes. “A rise to $160 in a year would put the shares at 17 times forward earnings estimates, where the Standard & Poor’s 500 index trades today. Considering Apple’s understated earnings, its cash hoard, its avenues for growth, and its history of beating expectations, it’s time for the stock to carry at least a market valuation, if not a premium.”

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