“I got two phones… think I need two more” raps Louisiana artist Kevin Gates.
Wedbush’s bold and bullish Analyst Daniel Ives initiated coverage of iPhone creator Apple (AAPL) with an Outperform rating, suggesting the stock is going to soar as more people buy iPhones and as those who missed out on upgrading to the 8/8+ and X models last time will seize the opportunity to get the latest XS, XS Max and XR released in September 2018. Ives translates the positive outlook to a price target of $310, representing an upside of 41%. (To watch Ives’ track record, click here)
“With positively trending ASPs that we believe can approach ~$800 in FY19 and healthy gross margins heading into this 2019 product cycle that are showing no signs of abating and could thus translate into upside for the upcoming September quarter, we believe many of the growth fears on the Street have been alleviated around Apple in the near term, however this upcoming product cycle remains a linchpin for Cook & Co. to lay the groundwork for “steady” iPhone growth for the next few years,” Ives said.
Ives’ analysis shows Wedbush data believes 350 million iPhones are due for an upgrade over the next 12 to 18 months, though Apple will need to hook users into upgrading in order to maintain a successful product cycle for 2019.
“With September Street numbers and FY19 set up well heading into a potentially robust iPhone product cycle along with a massive capital return strategy already in place as another tailwind, we continue to believe Apple shares are compelling over the coming year despite the recent run. In particular we continue to believe the “high octane fuel” from the services business that is on a trajectory to be a $50 billion annual revenue stream by 2020 speaks to the stepped-up monetization of Apple’s unparalleled installed base that is front and center for Cupertino (and its investors) over the coming years,” Ives said.
In addition to believing sales are going up around the world, Ives also offers that Chinese consumers are at the front of the line when it comes to upgrading iPhones. He estimates between 60 and 70 million iPhones are in the “upgrade window” with 100 million installed iPhones in the region. The analyst goes on to suggest Apple’s valuation is approaching the $1.5 trillion level, surpassing the $1 trillion dollar milestone the company achieved in August.
“In a nutshell, we ultimately believe AAPL’s valuation can approach the $1.5 trillion level based on our analysis of the monetization potential of its unparalleled consumer installed base over the coming years coupled by further multiple expansion around the services business,” the analyst said.
This bull is not the only one with faith in the iPhone maker, but he is far more optimistic about Apple shares than the rest of the Street. TipRanks’ shows a consensus of $241.33, a 10% upside from the current share price. Out of 36 analysts to offer an opinion on the stock in the last three months, 25 recommend Buying, 10 recommend Holding and 1 analyst suggests folding. (See Apple’s price targets and analyst ratings on TipRanks)