These Apple Stock Price Predictions Defy iPhone 8 Worries

In just the past three months, eight Wall Street analysts have raised their Apple stock price predictions, with one going as high as $184 and no one lowering their target.

Apple stock price predictionsBut that broad optimism flies in the face of an avalanche of negative news regarding the much-hyped iPhone 8 - the media's name for Apple Inc.'s (Nasdaq: AAPL) 10th anniversary edition of the device that defined mobile computing.

Just about every Apple-watcher agrees that the Cupertino, Calif.-based tech giant will commemorate the 2007 debut of the iPhone with an extra-special version that will offer several mouthwatering new features.

This generated a lot of talk early this year about an iPhone "supercycle" - a period in which an extraordinary number of existing iPhone owners would trade up to the snazzy new iPhone 8. Such a supercycle would produce record profits.

That sentiment powered the AAPL stock price higher through the first five months of the year. Apple stock hit an all-time high of $156.10 on May 12, a gain of nearly 35% from its Jan. 1 price.

But as the supercycle narrative was building, a steady stream of rumors started to hint at troubles with the iPhone 8's most-anticipated features...

This Should Be Bad News for the Apple Stock Price

As early as April, reports emerged that Apple was having trouble with a new "Touch ID" feature that dispensed with the physical button in favor of a virtual fingerprint sensor on the screen itself.

Other reports around the same time suggested there were production problems with the iPhone 8's customized OLED (organic light-emitting diode) screens. OLED screens offer deeper contrast and better energy efficiency than the LCD screens in current iPhone models. Such problems could severely limit inventory at launch.

By May, concerns arose about the likely iPhone 8's sale price. Speculation has ranged from $1,000 to $1,400, almost twice the cost of today's iPhone 7 models. Pundits opined that such a high price tag would eat into sales.

This month, stories started circulating that software issues with two other highly rumored marquee features - a front-facing 3D camera capable of facial recognition and wireless charging - meant the iPhone 8 would ship with both disabled.

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The array of suspected technical issues has also spawned reports that Apple will be forced to delay the launch of the iPhone 8 by several weeks or even months.

In recent years, Apple has announced its new iPhone models early in September with sales starting within two weeks - just in time to boost Q4 sales before the quarter ends on Sept. 30.

A delay would push all those sales into Apple's Q1.

While Apple hasn't confirmed any of these developments (keeping with the company's policy of absolute secrecy), Wall Street does take such reports into account.

In June, the Apple stock price pulled back about 9% from its all-time high. But as of today (Wednesday), AAPL stock is trading at $151 - less than 3.25% below its all-time high.

And analysts have continued to boost their Apple stock price predictions. From April 20, when Stifel Nicolaus raised its AAPL stock price target from $130 to $150, to July 17, when Morgan Stanley increased its Apple stock price forecast from $177 to $182, the analysts have brushed off the negative reports.

The average Apple stock price prediction for the eight analysts that raised their targets is $171.38, well above the overall analyst consensus of $160.75.

Here's why Wall Street's optimistic Apple stock price predictions make sense despite the gloomy stories...

Here's What Justifies the Rising Apple Stock Price Predictions

Whatever technical issues Apple is having with the iPhone 8, the company will get them ironed out.

Most importantly, any delay won't cost Apple sales - it will merely push them into the future. The hype around the iPhone 8 will make it a very high-demand product regardless of when customers will be able to get their hands on it.

That's exactly how Wall Street is seeing it. Since the start of 2017, the consensus estimate for Q4 iPhone unit sales has dropped from 48 million to 47 million. But the consensus estimate for Q1 has increased from 80 million iPhones to 84 million.

And several of Apple's iPhone 8 "problems" could work to its advantage.

Take the lack of supply, a likely possibility given the multiple technical issues.

Scarcity is a wonderfully effective marketing tool in the consumer tech world. People will wait in lines for hours to get a hot new device. And those lines get covered in the media, adding to demand.

Even the sky-high $1,000-plus price could become a benefit, denoting the iPhone 8 as a true luxury item and becoming a mark of prestige among the most devoted Apple fans.

Another key point often left out of stories addressing the iPhone 8's problems is that it almost certainly won't be the only new model unveiled in September.

Apple figures to give the iPhone 7 models a mild makeover to what will likely be called the iPhone 7s. The company also is due to upgrade the low-end, $399 iPhone SE.

That means Apple's less zealous customers will have plenty of buying options - options unrestrained by the iPhone 8's issues.

And Apple won't just be fine in the short term. The company's long-term prospects also look strong - and not because of the iPhone 8 or its successors...

Why Apple Stock Will Keep Rising

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While critics are correct that Apple will find it increasingly difficult to grow its iPhone sales - two-thirds of the company's business - other sources of growth will drive the stock price in the years ahead.

One of those - Apple services (think Apple Music and Apple Pay) - is already making a growing contribution to Apple's bottom line. Revenue from Apple's services segment grew from $16 billion in fiscal 2013 to $24.4 billion in 2016 - 13.3% of the total.

According to FactSet estimates, Apple's services revenue will nearly double to $43.5 billion by 2020 and account for 16.1% of the total.

The Apple Watch, while dismissed by many critics, is expected to contribute $7.3 billion in revenue by 2020 - a 60% increase from the $4.6 billion in 2016 Apple Watch sales.

The $349 HomePod, Apple's new "smart speaker" for the home, will go on sale in December.

Of course, these estimates don't account for new products and services Apple may introduce over the next few years. Prime candidates here include some sort of augmented reality headset (like Google Glass, but better) or self-driving car technology (possibly evolving into a cab service).

FactSet's estimate for Apple's earnings per share for 2020 is $11.69. Using a price-to-earnings ratio of 17 (Apple's P/E is currently 17.69) puts the 2020 AAPL price target at $198.73 - a 31.6% gain from the current price, not counting dividends.

And for those keeping score: Yes, an Apple stock price of $198 will push Apple's market capitalization past the $1 trillion mark.

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About the Author

David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.

Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.

Dave has a BA in English and Mass Communications from Loyola University Maryland.

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