Even If You Expect An iPhone 'Super Cycle', Has Apple Stock Just Gotten Too Expensive?

Very few analysts have anything but Buy ratings on Apple Inc. AAPL, but their optimism isn’t entirely unreserved.

Heartened by in-house survey results indicating high iPhone 8 demand, Baird Equity Research analysts William Power and Charles Erlikh reiterated a Buy on the stock Friday with notable consideration.

“The big question is what to do from here with the stock up 31.5 percent YTD, though we would note AAPL has increased in six of the past seven years in the three-month pre-launch window,” the analysts wrote in a note. “We continue to recommend into the launch.”

Interpreting Portends

Since 2010, Apple’s stock has averaged 7-percent increases three months ahead of iPhone debuts, but Power and Erlikh posited that, with values already significantly higher year-to-date relative to an 11.1-percent average from the previous seven years, much of the iPhone upside could already be accounted for.

Nonetheless, there might still be room for growth.

Apple popped 40.5 percent in the five months before the iPhone 5 launch and gained another 15.7 percent over the following three months ━ conditions reasonably replicable in this product cycle.

The Bottom Line

“We have viewed AAPL as our top big-cap pick for 2017 and expect it to continue to perform well into the launch,” Power and Erlikh wrote.

Baird justifies its thesis based on strong App Store and Apple Watch performances, 15-percent year-over-year quarterly services growth, buyback and dividend increases and positive cash flow. The research firm maintains a $160 price target on the stock, which was trading at $154.84 at the time of publication.

Related Links:

Apple’s OLED iPhone Production Ramp May Be Pushed Back Until Early Fall

Here’s What To Look For At Apple’s WWDC Next Week