Apple will hit $1,000 a share and become the first trillion-dollar company at some point in 2014, Piper Jaffray’s Gene Munster said Tuesday. The call may be hard to comprehend, but “Mad Money” host Jim Cramer thinks it’s “perfectly rational.”
Apple Store 5th Ave NY
To come to his very bullish outlook on Apple , Cramer said Munster figured out what the underlying earnings will be and then determined how much people are willing to pay for those earnings. Munster said Apple can earn $51 in calendar year 2013, and as much as $80 in 2015. He figures investors will pay $1,000 a share by 2014, given what it can make next year and what it might make in 2015.
From personal computers to tablets, cell phones and everything in between, Cramer said Munster thinks Apple has tremendous opportunity going forward. Munster added up the market caps of its competitors and came up with $959 billion in capitalization. He thinks that if Apple grows at an 18 percent clip, it would take $400 billion in market cap from its competitors, hence the trillion dollar Apple valuation.
To arrive at the multiple, though, Cramer said Munster found that its competitors have a price-to-earnings multiple that is close to or even larger than Apple’s multiple is. Cramer thinks it’s “illogical” that people should pay a similar amount (a similar multiple) for Apple’s earnings than they would pay for its competition.
But as Munster talks about how Apple is destroying its competition, he doesn’t think investors will pay more for Apple’s earnings than that of its competitors. To Cramer, that gives Munster’s call a lot of weight. In other words, if Apple earns the $80 a share Munster thinks is possible in 2015, and the stock goes to $1,000 a share, when you divide his earnings into the price target to get the multiple, Apple would be trading at just 12 times earnings. That’s toward the lower end of the multiples of Apple’s competitors, by the way.
“If anything, paying 12 times earnings for Apple is totally non-exuberant,” Cramer said. “Who would pay the same amount for Apple's future earnings as they would for the other guys? Apple's by far the superior company and it deserves a higher multiple.”
Munster acknowledged that things could change, such as a competitor could introduce a game changing product that moves its stock and shifts the direction of the industry. But for now, Munster thinks the tide is with Apple and Cramer agrees.
—CNBC.com with wires
When this story was published, Cramer’s charitable trust owned Apple.
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