Apple: Cheap Valuation Offers Trillions in Market Cap, Says Topeka

Topeka Capital Markets’s Brian White this morning reiterates a Buy rating on shares of Apple (AAPL) and a $1,111 price target, writing that he’s been hearing a lot “over the past several weeks” about how $500 billion is a “threshold” for the company’s market capitalization beyond which it may not be able to proceed.

Apple’s market cap today is $544 billion.

However, “We believe investors should think of Apple’s market cap potential in terms of trillions, not billions,” he writes.

White observes past holders of the $500 billion market cap designation don’t seem similar to Apple, in his view.

For one thing, they dominated their markets at the time, while Apple’s share of markets is small.

For another thing, valuation is on Apple’s side this time, he thinks:

These companies included Cisco Systems (CSCO-$17.10: Buy), Exxon-Mobile (XOM-$83.22: NR), General Electric (GE-$20.00: NR), Intel (INTC-$27.34: NR) and Microsoft (MSFT-$30.02: NR). Most of these companies enjoyed rich P/E ratios (except Exxon) when crossing $500 billion and the tech-related companies had monopoly-like market share positions, neither of which is the case for Apple. With Apple trading at just 8.4x our CY13 EPS estimate (ex-cash; or 10.4x straight P/E), the stock’s valuation is a fraction of the average P/E of over 80x for the three tech companies that crossed the $500 billion level and the over 60x average for all five companies. Regardless of a $500 billion market cap or a $50 billion market cap, a P/E of 60-80x was likely an unsustainable event. Even today, Apple is trading below the S&P 500 Index P/E ratio of 12.2x for CY13, despite the company growing EPS by 86% per year over the past seven years and our expectation of 71% EPS growth in FY12.

Adds White, with projected net income this calendar year of $46.2 billion, Apple is poised to become “the most profitable company ever.”

White doesn’t say how many trillions in market cap he actually thinks the stock can achieve.

Apple stock this morning is up $8.12, or 1.4%, at $582.25.