Why This Analyst Thinks Apple Inc. (AAPL) Will Miss — and Why It’s a Buy

The analyst also believes a cash-related announcement is due out this month, which echoes what other analysts are expecting since it’s been a year since the last cash call. BTIG sees the cash question as more of a management issue. If no dividend materializes, management will be heavily scrutinized for failing to return more cash. BTIG is modeling for Apple’s hoard to grow to $144 billion by the end of the March quarter.

A $5 billion freebie
BTIG’s fiscal 2014 estimates include an extra $5 billion in revenue for an “unspecified new product.” That’s a big freebie that amounts to a vote of confidence in the company. There’s no shortage of possibilities of what Apple may have up its sleeve, so this $5 billion in sales could come from just about anywhere.

That may seem to be a generous freebie, but $5 billion is actually rather conservative for new product categories. Morgan Stanley’s Katy Huberty recently estimated that an iWatch could turn into at least $10 billion in incremental revenue, and an iTV could add $17 billion to the top line. That’s before even considering new services that Apple could launch, like a mobile payment option.

Google Inc (NASDAQ:GOOG) may have the upper hand in a lot of ways with cloud services (like Maps and Gmail), but BTIG notes that Android’s fragmentation limits the reach of new services that the search giant introduces because so many users are stuck on old versions. Meanwhile, Apple Inc. (NASDAQ:AAPL) is extremely efficient at upgrading users to the newest versions of iOS, so new services can potentially reach higher penetration levels much faster.

R-E-S-P-E-C-T, find out what it means to me
The $540 price target is derived from an earnings multiple of 12 and fiscal 2014 EPS estimate of $45. That would require some multiple expansion from its current P/E of just 9.8, even as that EPS estimate represents modest growth from Apple’s current $44.11 in trailing EPS. New growth opportunities in affordable iPhones and new product categories that can drive growth beyond 2014 will be key to earning more respect from the Street.

The article Why This Analyst Thinks Apple Will Miss — and Why It’s a Buy originally appeared on Fool.com and is written by Evan Niu.

Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications (NYSE:VZ). The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google.

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