is the world’s most highly valued company, with a market capitalization of $1.389 trillion. With the stock nearing the record closing level of $327.20 it hit in February, it is reasonable to wonder how much further it can go.
Evercore ISI analyst Amit Daryanani thinks the stock can go higher, and maybe a lot higher.
In a research note, the analyst laid out a path for Apple (ticker: AAPL) to achieve a $2 trillion valuation, a level no company has reached. He thinks the stock can get there over the next four years, which implies annual appreciation on a percentage basis in the mid-teens.
There is nothing fancy about the analysis. Daryanani isn’t presuming that the company suddenly jumps into some vast new market. He just thinks the core businesses will keep growing—and that the valuation will do the same.
The Evercore analyst laid out four primary elements that could lift the market capitalization toward $2 trillion.
Higher profits: Daryanani thinks the company can reach earnings per share of $23 in the September 2024 fiscal year, not quite double his current estimate of $12.72 a share for fiscal 2020. The analyst said his model implies EPS growth of 14% annually, driven by a combination of “operational tailwinds and buyback support.”
Services and wearables: He has high hopes for Apple’s services and wearables arms, anticipating sustained double-digit growth for both, driven by higher average revenue per user and a better monetization of the installed base of device users. He sees revenues from the wearables business, which includes AirPods and the Apple Watch, headed to more than $60 billion over the next few years. And he thinks revenue from the services business can reach $100 billion.
Gross margins: The analyst noted that Apple’s services segment operates with gross margins in the mid-60% range, versus a percentage in the high 30s for the corporation as a whole. Services continue to grow faster than the hardware operation, so corporate gross margin will expand, Daryanani predicted.
Multiple expansion: He thinks the stock “re-rates” to a price of 24 times forward earnings, “still a healthy discount to the 26-27 times average P/E” for Apple’s peers in consumer staples and luxury goods.
The analyst also expects Apple to continue aggressively buying back stock. He thinks the company will reduce its share count by about 1 billion shares in the forecast period, from 4.6 billion at the end of fiscal 2019 to 3.6 billion in fiscal 2024. At that share count, the market cap would hit $2 trillion if the stock price was just over $550.
“Apple continues to offer the best risk/reward in large-cap tech and long-term investors should use any weakness to add to positions,” Daryanani concluded. He repeated his Outperform rating, and lifted his target for the price to $360, from $345.
The shares were up 0.8%, to $320.58 on Monday.
Corrections & Amplifications: Apple has a market capitalization of $1.389 trillion. An earlier version of this article misstated the figure as $1.389 billion.
Write to Eric J. Savitz at email@example.com