Apple Inc. Services Upside Potential and Greatest iPhone Cycle in 3 Years Have This Analyst More Bullish Than the Rest of Wall Street

Guggenheim's Rob Cihra sees further compelling upside potential for Apple when looking at the next 3 fiscal years, believing Services will matter increasingly more in the long-term picture.


Guggenheim analyst Rob Cihra is one of the top two biggest bulls on the Street when it comes to Apple Inc. (NASDAQ:AAPL) and its tremendous opportunity in the market. Already more confident than consensus, the analyst sees fit to now lift his expectations even higher for the next three fiscal years, underscoring glittering prospects in iPhone average selling prices (ASPs) and Services mix.

For fiscal 2018, the analyst now stands 40 cents ahead of consensus and over $1 past the Street by fiscal 2019 and fiscal 2020.

Calling this the tech titan’s best iPhone cycle in 3 years, the analyst notes, “while that ironically makes its growing Services narrative less important to numbers near-term, Services gain importance over 3yrs and should already help boost AAPL’s P/E.”

While the Street predicts 19% year-over-year gains for Apple’s revenue come fiscal 2018, the analyst stands by his expectations for revenue to re-accelerate at an even faster pace of 25% year-over-year.

Cihra believes, “We […] see iPhones driving 70% of all growth from FY17-20E, increasing from 62% to 64% of revs mix on its biggest upgrade cycle in 3yrs driven by 1) pent-up demand after 2 weak years + 2) multi-year new tech roll-out including OLED screens, 3D sensing/Face ID, uniquely integrated augmented reality (AR) and on-device AI (Core ML) + 3) meaningfully higher blended ASPs. We believe iPhone X is ramping even better than expected and see ongoing upside in AAPL stock as many investors ‘sell the news’ but we think underestimate 1) higher ASPs (e.g., we continue to estimate FY18E iPhone revenue +32%Y/Y with units 3%Y/Y but ASP +17%Y/Y) and 2) follow-on SKUs likely coming 2H18E, naturally including an even larger-screen iPhone X Plus.”

Meanwhile, as the “App Store leads with upside in new AR apps,” where Cihra gives the company “first-mover AND sustainable competitive advantage” in the augmented reality playing field for hardware and software as well as monetization, and new spending on original streaming content, the analyst concludes on an enthusiastic note for promising long-term gains down the line.

Therefore, the analyst reiterates a Buy rating on AAPL stock with a price target of $215, which represents a nearly 25% increase from where the stock is currently trading. (To watch Cihra’s track record, click here)

TipRanks highlights a strong bullish consensus for this tech darling of Wall Street, with 25 out of 31 analysts polled in the last 3 months rating a Buy on Apple stock. This leaves just 6 analysts sidelined on AAPL prospects. With a return potential of nearly 10%, the stock’s consensus target price stands at $187.97.