Secondly, the Street continues to discount the impact of Apple's deal with China Mobile (CHL), which was made official last December. Analysts still haven't figured out how to model for this potential growth. But it was right in front of them --…
Last month, when China Mobile, the world's largest carrier with more than 770 million subscribers, announced its annual earnings, the company said it added roughly 1 million iPhones in February, including 1.34 million 4G users. China Mobile's chairman Xi Guohua (then) told The Wall Street Journal that "most of them are iPhone users."
Analysts failed to make the link to Apple. By focusing only on the fact that China Mobile saw its first profit decline in a decade, they did a disservice to investors. Based on Xi's remarks, investors should anticipate a nice boost to Apple's iPhone sales -- even though Apple management disappointed the Street with its second-quarter guidance.
Assuming that China Mobile sales remain at the current pace, this should spur iPhone device sales by an additional 14 million to 16 million. Apple stock should respond by trading (at least) 18% to 22% higher in the next 12 months. This will place fair-value at around $650 by the beginning to 2015. And this doesn't even include the highly anticipated iPhone 6, which is expected to be bigger and sport a larger screen.
This new iPhone is certain to give iPhone lovers a reason to upgrade. Not to mention, it will end the complaints about Apple not giving its customers what they want. There are those that have switched to Samsung phones due to their larger screens. So Apple is certain to win back those customers.
Imagine the impact of a larger iPhone being accessible to 770 million China Mobile customers. While not all of them will decide to switch to a larger iPhone, or for that matter, an iPhone, the opportunity for Apple is there nonetheless. And Apple will have to start guiding according to its next product launches, since they will now include China Mobile within the global sales.
This is because, unlike the past, China Mobile will get new iPhones at the same time as the rest of the world. What's more, as China Mobile's 4G service increases throughout China, this will add incremental growth to Apple's sales. The Street still has not made this correlation. Carl Icahn has, which is why he maintains Apple is a no-brainer. It seems foolish, at this point, to disagree.
At the time of publication, the author was long AAPL and held no position in any of the other stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.