Can Apple Become The World's First Corporation Valued At $1 Trillion?

With commendable sales figures expected for the iPhone 6 and iPhone 6 Plus and a pioneering foray into wearable technology with the Apple Watch, Apple Inc. (AAPL, Financial) seems to justify investment bank FBR & Co.’s potential valuation of the tech giant at $1 trillion in a year. But analysts have released financial research and reports over the last week, and the results are not entirely unanimous about Apple’s future.

Speculation is rife

Analyst Daniel Ives, from FBR Capital, deemed Apple worthy of an ‘Outperform’ rating, claiming that potential share price would touch a massive $185 per share. From where the stock is trading currently, that represents a 47% jump.

“While Apple remains a widely covered company from a sell-side perspective, we are throwing our hat in the ring with the unique approach of focusing more on Apple’s software, which represents the ‘crown jewel’ embedded in its products/ services and should ultimately help lead it to becoming the world’s first $1 trillion company as mobile device hardware becomes increasingly commoditized,” Ives elaborates, in a statement issued to the press, “With the Apple Watch launch front and center this week (pre-sales) as it potentially opens up another growth avenue, we ultimately believe that, at its core, Apple attracts its customers by leveraging the benefits of its closed software ecosystem, driving greater adoption of its devices and services, a positive dynamic and a major ingredient in Apple’s recipe for success. We believe the Street is currently underestimating the top-line/profit growth potential in these key areas with Apple’s all-important software platform at the epicenter of its solutions.”

Nehal Chokshi, an analyst from Maxim Group, is more conservative in her research report, with a ‘hold’ rating and $144 price target. This represents a 15% rise from Apple’s last closing price of $124.78, as of Friday evening. Chokshi backs up findings with a cautious understanding of Apple’s ‘loyal’ customers claiming that “~40% of loyal iPhone users have a similar usage profile to the 11% of current iPhone users who intend to switch away”. These ‘latent switchers’ would swing away from Apple if their carrier wouldn’t force them to stick with it.

“Our analysis indicates that this retention rate is still too low for carriers to walk away from AAPL’s premium pricing terms,” the analyst says, “Finally, our data on loyal iPhone usage profiles shows little change over the past three years, giving us confidence that latent switcher rates will remain at the current 40% level. Thus, even if Android pricing completely commoditizes, AAPL’s premium price + subsidy should remain intact, and we note that growth of installment plans make the premium pricing even less detectable.”

Markets tell a different tale

Apple’s shares have already fallen by $8.88 a share since peaking this year, shaving off market value of $51.7 billion in a matter of weeks. This brings Apple’s market value to $726 billion, making it the most valuable stock on S&P’s scale. But that is still not close to $1 trillion mark.

After Friday’s trading, Apple shares were down 1.2% to close at $124.72. The share price has been falling, reacting to the sinking market. Market watchers point at Apple’s stock falling below its average price in 50 days and claim that the stock is breaking down. But the same dip was visible in January, and the stock recovered very well to touch greatest height yet.

FBR justifies its predicted $1 trillion value for Apple by breaking the business down into various segments and placing future profit estimates to each segment. For example, FBR estimates that the iPhone unit will earn the company $611.7 billion, while services will be worth $131.8 billion, Mac will ring up $59 billion, the Apple watch will be worth $34.8 billion, the iPad unit at $26.4 billion and other peripherals and parts would earn the company around $17.8 billion. On adding to this net cash of worth $145 billion, one would have a $1 trillion smartphone and software manufacturing company.

S&P IQ also reflects the ‘Bullish’ community sentiment of market analysts regarding Apple, with its 18 month price target of $142.42 per share. But even at that price, the company’s expected market value comes to only $829.6 billion.

Parting note

The technology giant is expected to announce earnings on Monday, April 27. Analysts are being cautious, and yet hopeful, of Apple’s ability to create history. There are several analysts who are hopeful that Apple would create history by touching the $1 trillion mark soon. So, let’s watch closely how the market value of Apple moves ahead in the days ahead.