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Apple iPhone 5 Demand Alone Will Push Stock Price Past $800

If the Apple iPhone 5 turns out to be the blockbuster product that nearly everyone expects, it should easily carry the company's stock to $800 and beyond.

The long-anticipated next-generation iPhone is expected to debut at an Apple Media Event Sept. 12 and go on sale Sept. 21.

Rumored improvements such as a bigger 4-inch screen and 4G LTE network compatibility have heightened consumer anticipation, even slowing sales of the current iPhone 4S.

A recent survey of more than 4,000 American consumers by ChangeWave Research indicated that many can't wait to give their money to Apple Inc. (Nasdaq: AAPL).

"Advance demand for the iPhone 5 is strikingly higher than we've seen for any previous iPhone model," Paul Carton, ChangeWave's vice president of research, told Computerworld.

In addition, extraordinarily positive guidance from several iPhone component suppliers hints that Apple has ramped up production like never before. Cirrus Logic (Nasdaq: CRUS) forecast a 70% sales increase for the current quarter. Omnivision (Nasdaq: OVTI) said it expected revenue to jump 38%-50%.

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And with Apple's huge patent case victory over Samsung two weeks ago casting a cloud over the iPhone's Android-based competitors, conditions are ideal for a huge iPhone 5 launch.

In a note last month, Piper Jaffray analyst Gene Munster, predicted the Apple iPhone 5 would be "the largest consumer electronics product upgrade in history." He forecast the iPhone 5 will sell 6-10 million units within its first 10 days.

Another analyst, Horace Dediu of Asymco, has projected iPhone 5 sales of about 170 million units over the next year, which would beat first-year sales of the iPhone 4S by about 70%.

Given that the iPhone contributes more than half of Apple's profits, any large increase in iPhone sales will deliver a mammoth boost to the bottom line. And those rapidly rising profits will keep pushing AAPL higher.

The Impact of Apple iPhone 5 Profits On AAPL

Let's say that Dediu's assumptions are in the ballpark.

Given that the profit margin on the iPhone 5 should be about the same or only slightly lower than on the iPhone 4S (very likely), let's see what happens when the iPhone's contribution to Apple's annual earnings per share (EPS) rises by 70%.

Apple's EPS for the trailing twelve months is $42.55. For simplicity's sake, let's say exactly half that, $21.27, came from the iPhone. A 70% increase would add $14.89 to Apple's EPS, pushing it to $57.44 for the coming twelve months.

That EPS, it should be noted, does not include any increases whatsoever in Apple's other businesses, such as the iPad, the Mac and the iTunes Store. It represents only the impact of the iPhone 5.

To estimate how far that EPS might take Apple's stock price, we can apply the price/earnings ratio, which as of now is just under 16. AAPL is trading at about $676 per share.

A conservative calculation using a P/E of 14 and an EPS of $57.44 would put Apple stock at $804.16. (At a P/E of 16, the price hits – gulp — $919.)

By the way, that EPS estimate is only slightly higher than those of the professional analysts for Apple's 2013 fiscal year (which starts in the December quarter).

The average FY2013 EPS estimate for the 53 analysts that cover Apple is $52.51, with the high estimate being $63.50.

They've also been ratcheting up their one-year price targets in the past few weeks.

For example, JPMorgan analystMark Moskowitz upped his price target for AAPL to $770 from $675. Analysts at Oppenheimer raised their target to $800. And Scott Sutherland of Wedbush Securities reiterated his outperform rating while increasing his target to $885.

Macs, iPads, and Apple TV

While the iPhone is by far the primary driver of Apple profit, its other businesses are also growing and contributing to the company's bottom line.

That means whatever pop the iPhone 5 provides will be supplemented by increasing sales of iPads and Macs as well as the sales of apps, music and video. All will add to Apple's EPS – every division makes a profit — adding still more fuel to the stock price.

And such estimates don't take new products into account, either.

Many believe Apple also will use the Sept. 12 event to unveil a 7.85-inch version of the iPad – the so-called iPad Mini. Such a device would help solidify Apple's dominance of the tablet market in addition to hauling in still more profit.

Finally, there's the rampant speculation about Apple somehow reinventing television. Imagine the added profit potential from that.

You really can't blame the analysts for racing to out-do each other's Apple forecasts.

"We are increasing our estimates to reflect an earlier-than-expected iPhone 5 launch and likely mini-iPad introduction in [the December quarter]," Wedbush's Sutherland said in a typical analyst assessment. "We remain bullish on Apple given its robust product ecosystem, solid product pipeline, continued growth catalysts, and reasonable valuation."

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