shares were rising Monday after analysts at KeyBanc Capital Markets initiated coverage on the stock with a bullish outlook, citing growth in the tech giant’s services segment.
Analyst Brandon Nispel rated the stock Overweight with a $191 price target. The target presents an 18% increase from Apple’s (ticker:
) $161.84 closing price on Friday. The stock was up 3.2% to $166.97 on Monday.
Of the 42 analysts covering the stock surveyed by FactSet, 32 have it at a Buy or Overweight rating, nine rated it at Hold, and one rated it Underweight.
“While AAPL is expensive by historical valuations, we find AAPL attractive relative to other mega-caps,” Nispel wrote on Monday.
The analyst outlined three main reasons for his bullish take. Nispel doesn’t believe iPhone unit sales have peaked, with the 5G upgrade cycle potentially pushing Apple past its current peak; he believes the company has managed to increase its product breadth to reduce reliability on iPhone sales; and he foresees services to grow at rates multiple times faster than user growth.
The analyst forecasts Apple to have 1.09 billion active iPhones and 1.8 billion active installed devices by the end of the first quarter of the 2022 fiscal year. This presents a 7% and 8% year-over-year increase, respectively.
“This shows a healthy growing user base where Apple iPhone market share is low relative to key geographies outside the United States,” Nispel wrote. “As the installed base grows, a larger base can support more sales on lower upgrade rates.”
Apple’s international segment is likely to grow faster in the coming years as other countries adapt to 5G, prompting a wave of upgrades to compatible hardware, Nispel wrote. He estimates every 1% increase in 5G upgrade rates could drive an incremental 11 million iPhone unit sales.
As hardware adoption grows, so does Apple’s services business. The segment, which includes services such as Apple TV+, Music, News+, AppleCare, Advertising, and Cloud, has grown 27% in the 2021 fiscal year. Over time, it could become a key profitability driver, growing to more than $100 billion by 2024, Nispel said.
Nispel recognized that Apple’s App Store legal battles were concerning, but were “likely more a bend, not break outcome.” The company has had to make modest changes to its App Store guidance in response to court rulings and regulatory changes, including lowering its commission for some developers. It will likely make more concessions over time, such as allowing developers to provide third-party payment options, Nispel said.
“We expect regulation to take time to implement, and believe Apple’s competitive advantage is unlikely to be substantially harmed,” he added.
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