Apple Inc. (AAPL): Are Investors Focusing Too Much on iPhone Unit Trends? Top Analyst Says Watch Out for Services Steam

RBC Capital's Amit Daryanani sees a tech titan primed to keep outclassing the market.

Top analyst Amit Daryanani at RBC Capital is out taking a closer look into Apple Inc. (NASDAQ:AAPL) and its Services segment, believing investors have been “hyperfocused” on the wrong part of a much bigger picture: iPhone unit trends.

For Daryanani, it’s all about the tech giant’s talent in being able to boost margins, scale back “cyclicality,” and step up attractive valuation.

As such, the analyst reiterates an Outperform rating on AAPL stock with a $205 price target, which implies a 17% upside from current levels.

Amit Daryanani has a very good TipRanks score with an 89% success rate and one of the strongest rankings on the Street: #9 out of 4,778 analysts. Daryanani realizes 30.4% in his annual returns. When recommending AAPL, Daryanani earns 29.4% in average profits on the stock.

“We think investors have been hyperfocused on the iPhone unit trends and less focused on AAPL’s ability to grow and monetize the install base. We estimate ~20% services growth is driven by combination of increased monetiziation of install base (Average revenue per device is ~$24) and growth in the aggregate iOS install base (1.3B devices). Fundamentally, AAPL’s Services business is a critical part of the investment thesis, particularly as the smartphone market matures. Net/ net: We believe AAPL stock should continue to outperform the market driven by strong FCF generation, ability for outsized capital allocation and a growing iOS install base that generates sustained and recurring FCF growth,” writes Daryanani.

Keep in mind, Apple’s objective is to ramp up its Services segment up roughly $48 to $50 billion within two years. Present-day, the company is already bringing over $30 billion in revenues to the table. This business is growing at a rapid-fire pace and Daryanani is taking notice, noting gross margins here tower meaningfully ahead of corporate average. Additionally, the analyst commends Services for being “highly cash flow generative” with “growth […] largely independent of device cycles and […] a long runway.”

Not only does the analyst predict Services will have a standalone multiple stronger than Apple’s hardware business, but likewise anticipates a “better valuation narrative” in store for the company.

“While early, we think services will grow into an important part of AAPL’s strategy driving investments, determining future product roadmap and perhaps M&A,” concludes the analyst, bullish on Apple’s “Services snowball” ahead.

TipRanks showcases the big AAPL machine is well-liked among experts on the Street. Out of 29 analysts polled in the last 3 months, 16 are bullish on AAPL stock while 13 remain sidelined. With a return potential of 9%, the stock’s consensus target price stands at $191.30.

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