On Tuesday, CFRA, a well-known financial research firm, upgraded the stock price target for Apple Inc. (NASDAQ: NASDAQ:AAPL) to $260, up from the previous target of $240, while maintaining a Buy rating on the shares. This adjustment reflects the firm's optimism about Apple's potential growth in artificial intelligence (AI) and free cash flow (FCF).
The analyst at CFRA provided a rationale for the increased target price by shifting to a price-to-earnings (P/E) ratio of 31 times the projected calendar year 2026 earnings per share (EPS) of $8.30. This P/E ratio is above the historical average, indicating a bullish stance on the company's growth trajectory, especially in the domain of AI.
While the forecast for fiscal year 2024 (ending in September) EPS remains unchanged at $6.56, projections for the following years have been raised. The EPS estimate for fiscal year 2025 has been increased to $7.35 from $7.23, and for fiscal year 2026 to $8.22 from $8.10. These adjustments are based on the anticipation of a recovery in the Chinese market and a strong uptick in iPhone revenue driven by AI advancements.
Apple is scheduled to announce its June quarter results on August 1, with focus areas expected to be its performance in China, the Services segment, and guidance for the September quarter. The CFRA analyst predicts that the June quarter will mark a turning point for Apple in China, with improving sales trends and easier comparative figures moving forward.
The analyst also anticipates a significant increase in iPhone revenue growth—between 6% to 8% for fiscal years 2025 and 2026—buoyed by AI, which is seen as the most compelling reason for consumers to upgrade since the introduction of 5G technology.
The momentum is expected to be supported by broader international availability of AI features, enhanced integration within applications, and a growing number of users with older devices.
In addition to the positive outlook on the iPhone, the Services segment is expected to grow by 13% in the June quarter and by 11% in the September quarter. Furthermore, iPads are projected to be the fastest-growing segment, with a 16% increase, likely bolstered by recent product launches.
InvestingPro Insights
Following CFRA's optimistic upgrade of Apple Inc.'s price target, several key metrics and InvestingPro Tips provide additional context for investors considering the tech giant's stock. With a towering market capitalization of $3.59 trillion and a P/E ratio standing at 36.2, Apple's valuation reflects its significant market presence and investor confidence.
Notably, the company's revenue for the last twelve months as of Q2 2024 reached $381.62 billion, despite a slight decline of 0.9%. Moreover, Apple's gross profit margin remains robust at 45.59%, underlining its effective cost management and pricing power.
InvestingPro Tips highlight that Apple has a track record of raising its dividend, doing so for 12 consecutive years, which may appeal to income-focused investors. Moreover, the company's stock is currently trading near its 52-week high, suggesting strong recent performance.
For investors seeking further guidance, there are additional InvestingPro Tips available, which can be accessed through the InvestingPro platform. Using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, offering even more insights to inform their investment decisions.
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