GBH Analyst Pounds the Table on Apple (AAPL) Stock

GBH analyst Daniel Ives was out pounding the table on shares of tech giant Apple (NASDAQ:AAPL) Thursday, reiterating a Highly Attractive rating rating, while boosting the price target to $245 (from $215), which represents a potential upside of 13% from where the stock is currently trading. (To watch Ives’ track record, click here)

Apple has been financially dependent on its iPhone sales for years now. It earns about 56% of its top line from the device and even though the business is humming along nicely, Apple is wisely expanding its revenue in other areas as well. Most notably, Apple’s Services segment is a rising star within the company’s business. Services sales were up by 31% in the most recent quarter, to $9.5 billion, and they now represent 18% of the company’s top line. This growth shows that Apple not only knows how to sell devices to its customers, but it can also convince them to spend more money in the company’s ecosystem through its ever-increasing list of services.

Indeed, Ives continues to believe the “high octane fuel” from the services business which 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.

“We believe Apple’s new products should drive high margin services revenue growth and continue to drive the company’s unique software/services ecosystem across technology. While Apple’s product pipeline and demand trajectory around Macs and iPads should sustain relatively stable revenue for FY19, clearly the biggest area of growth and margin improvement is around the company’s growing services business as evidenced again in the recently reported June quarter. With iCloud, Apple Pay, Apple Music, and other digital downloads driving this vast ecosystem, we believe this segment could top $50 billion of revenues by FY20 as the growing iPhone installed base further drives this software/services business with a potential streaming service (and future acquisitions around content, studios) as a wild card. In our opinion, as the services business continues to significantly ramp over the coming years this will be a key variable to Apple’s stock ultimately getting re-rated over time with the Street giving more credit to this incremental growth and margin driver for Cupertino going forward,” Ives wrote.

Net net, Apple has a cautiously optimistic Moderate Buy consensus rating from the Street. This breaks down into 16 buy, 12 hold and 1 sell ratings in the last three months. We can also see from TipRanks that the average analyst price target is $212.33 – a slight downside from the current share price.

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