JMP raises Apple price target to Street-high $150 on 'exceptionally strong' demand for iPhone, iPad

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Analyst Alex Gauna of JMP Securities has raised his price target for Apple from $135 to $150, predicting an "explosive" quarter for the company based on "exceptionally strong" demand seen in both China and the United States.

According to a report by Tiernan Ray of Barron's, Gauna cited strong demand for premium capacity versions of iPhone 6 and 6 Plus, as well as for iPad Air 2 and iPad mini 3.

"The iPhone 6 Plus is stocked out at all three major carriers in China," Gauna stated, "and we're seeing the longest lead times we've seen at Apple stores there, so very consistent with what we've seen in U.S. Overall, we're seeing very limited supply, with lead times still very strong."

Demand for premium high capacity iPhone 6 and 6 Plus models also "suggests average selling prices (ASPs) can be very strong for Apple, and the gross margin potential is high," Gauna added. "China Mobile subscriber adds have been accelerating, through October, and we think iPhone is a big part of that."

iPad Air 2

Gauna also noted that "90 percent or more" of Best Buy stores in major cities including Chicago, Dallas, Los Angeles and New York are stocked out of both iPad Air 2 and iPad mini 3. "We like what we've seen," Gauna stated.

Stock-outs from high demand, not limited supply

Apple has previously noted that despite its massive, diversified supply chain it has still had trouble building enough products to meet demand.

"We don't think supply is so low that it reflects limited demand," Gauna stated in the report. "Apple suppliers have said even Apple has been surprised by the strength of demand.""Apple suppliers have said even Apple has been surprised by the strength of demand"

JMP is "now modeling $67 billion in revenue for this quarter, above the company's own guidance, based in part on our industry sources," Gauna stated.

He noted that "based on the strength of demand— and we'll see some evidence of that potentially after the close today, with Avago— the read-through is very favorable."

Avago Technologies has been a key supplier for Apple's iPhone, producing radio power amplifier chips used to connect to mobile networks. In line with Gauna's comments, the firm just reported a 118 percent jump in year over year revenues, the largest part of which is derived from the company's wireless communications sales.

Apple's competition is fading, opportunities growing

Gauna added, "what I think is also very telling is the competition continues to fade. Samsung is still seeing slippage. The September quarter numbers showed Apple had turned the tables, and gained share. That looks to continue to through the December quarter. Samsung is really the only other rival, and that also has favorable implications for [Apple's] pricing and margins."

JMP's estimated $67 billion in Apple revenues during the December quarter would indicate 16 percent year over year growth, up from the 12 percent growth Apple announced in the September quarter.

"We see Apple maintaining a mid-teens growth rate for the next couple years. We don't see the competitive landscape closing now," Gauna stated, adding that Google's Motorola-built "Nexus 6 is having some production issues of its own."

Gauna stated that "iPhone 6 and 6 Plus represent a major step forward for Apple. I think they can match that in 2015," noting that "it's very positive that China has a real 4G network going into place and demand is so strong. Once you get a full year of 4G in place with all three carriers (China Unicom and China Telecom are not even into their roll out), that's the most clear tailwind for the story."

Apple's stock reached a new all time high cents above $119 on Wednesday, then rose slightly on Friday following the Thanksgiving holiday. However, the stock fell sharply to $115 after the market opened Monday December 1, and closed today slightly below $116.

At the company's current outstanding share count of 5.87 billion, JMP's stock target would give the iPhone maker a market capitalization of over $880 billion. At $150, Gauna's target is also the most ambitious on Wall Street.

AAPL Dec 2014

Since the start of 2014, Apple shares are up 44.64 percent, compared to Microsoft's 28.51 percent gain or Google's 5.08 percent decline in nonvoting GOOG C class shares and 4.26 percent decline in standard GOOGL A class shares.

Barclays analyst Ben A. Reitzes also raised his price target for Apple today, from $120 to $140, noting that increased customer demand for larger-screened iPhones and iPads, the introduction of the Apple Watch, and the unveiling of new services like Apple Pay could significantly expand the company's margins.

Canaccord Genuity similarly raised its price target for Apple to $135 on Tuesday, noting "Apple dominated the handset industry operating profits and captured a remarkable 86% of (Q3) 2014 handset industry profits and should grow its share of industry profits during Q4 2014."