Top Analyst Believes Apple Inc. (AAPL) Still Has Gains Up Its Sleeve

Case in point: Are Apple Inc. (NASDAQ:AAPL) iPhone sales taking a hit from a costly iPhone X?

Top analyst Michael Walkley at Canaccord did some smartphone survey work on the domestic front that points to robust iPhone sales in the first fiscal quarter of 2018. In fact, seasonal demand appears quite “normal” as far as Walkley is concerned based on January’s sales trends- which though appear more sluggish, this is to be expected.

Therefore, the analyst reiterates a Buy rating on AAPL stock while boosting the price target from $195 to $200, which implies a just under 15% upside from current levels.

“Further, with iPhone X reaching supply demand balance exiting the December quarter or ahead of our expectations, we are increasing our December quarter estimates but lowering our March quarter iPhone estimates,” explains Walkley.

For 2018, the analyst forecasts the iPhone replacement rate worldwide will experience a rise from last year’s 26.8% to 31.3%, noting that “the new iPhone features and improving supply drive a stronger upgrade cycle from Apple’s growing installed base.” Taking under account a bet on standout 2018 upgrade sales to enable the titan to bring 241 million to the table in iPhone sales, the analyst expects a “slightly moderating but still strong upgrade rate of 29.0% ” next year to realize for Apple 239 million in iPhone sales.

Worthy of note, the analyst already believed the iPhone X supply would take “well into the March quarter” in order to fulfill demand, which helped trigger his bet in the first place on a better than “normal” second fiscal quarter. Between supply meeting demand closing out the first fiscal quarter coupled with a “more normal seasonal demand” kicking off the new year, the analyst is lifting his first fiscal quarter iPhone projection from 78.5 million units to 80.6 million units while lowering second fiscal quarter iPhone expectations from 66.0 million to 59.9 million units. For fiscal 2018, the analyst has reduced his iPhone unit forecast from 249 million to 241 million units while conversely raising his fiscal 2019 iPhone unit expectations from 235 million units to 239 million units. Meanwhile, highlighting enthusiasm for the HomePod launch due next month, the analyst has lifted his other products revenue expectations.

These expectations have guided Walkley to adjust his EPS estimates between 2017 and 2019, taking expectations for 2017 from $9.56 to $9.70; for 2018, the analyst cuts back his EPS projection from $12.37 to $11.95; for 2019, Walkley fires up his EPS forecast from $12.24 to $12.51.

On a final bullish note, Walkley argues that an “increased mix of larger screen OLED iPhones [is] likely to drive strong ongoing iPhone sales through C2019,” thanks to a better margin and loftier average selling prices (ASPs) for iPhones. The analyst is upbeat on the titan’s franchise to “extend” stellar sales of the very high-priced iPhones that have the Wall Street grapevine in an apprehensive uproar, believing sales will unfold through 2019.  Even with reduced short-term expectations, Walkley would not be surprised to see his 2019 forecasts “prove conservative,” especially “as new iPhones could drive a stronger replacement cycle than the initial iPhone X versus our current estimates anticipating a modest slowdown in 2019 upgrade sales.” The analyst surmises: “Further, with Apple’s cash repatriation, increased capital returns and especially stock repurchases could also create upside to our estimates.”

Michael Walkley has a very good TipRanks score with a 67% success rate and a high ranking of #50 out of 4,757 analysts. Walkley yields 19.5% in his annual returns. When recommending AAPL, Walkley realizes 27.1% in average profits on the stock.

TipRanks demonstrates substantially confident sentiment circling the AAPL tech machine, with 21 of 29 analysts in the last 3 months rating a Buy on Apple stock while 9 maintain a Hold. The 12-month average price target stands at $194.41, marking a nearly 12% upside from where the stock is currently trading.

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