In the near-term, Apple (AAPL) might have its work cut out for it. The soft macro environment and COVID-19 backdrop are expected to keep consumer demand trends down in the dumps for some time. But, take a step back and look at the big picture, and you’ll see that the tech giant has a “once in a decade” opportunity.
At least this is the viewpoint of Wedbush’s Daniel Ives. The 5-star analyst tells clients that over the next 12 to 18 months, roughly 350 million of the 950 million iPhones worldwide are eligible for an upgrade.
Ives explained, “…we believe iPhone 12 represents the most significant product cycle for Cook & Co. since iPhone 6 in 2014 and will be another defining chapter in the Apple growth story looking ahead despite a softer consumer spending environment in our opinion. We still believe many on the Street are underestimating the massive pent-up demand around this supercycle for Apple, which remains the opportunity for the bulls heading into 2021 as this monetization engine heads into its next gear.”
Ives points out that China still remains a key piece of this puzzle, with approximately 20% of iPhone upgrades set to come from this region over the coming year, based on his estimates. To support this, he cites the fact that “considerable strength” has been witnessed in the region, as trends are positive going into the fall season. According to the analyst, this momentum is likely to persist in the next six to nine months.
It should be noted that some investors have expressed concern regarding the WeChat ban and its effect on AAPL. However, Ives thinks “the WeChat ban will not negatively impact or disrupt Apple’s iPhone ecosystem within the key China market.”
When it comes to 5G, Ives makes it clear that the technology “remains the linchpin to future upgrade cycle.” Expounding on this, the analyst stated, “Our recent Asia supply chain checks conducted by our TMT team show a discernible uptick in forecasts for iPhone 12, which bodes well for demand trends heading into this highly anticipated October launch. We reiterate based on supply chain checks we are expecting ONLY 5G models for the Fall launch with a next generation 4G model (5th model) potentially hitting the market with lower price points in early 2021 another demand catalyst. From a 5G perspective, there will be a U.S. and a non-U.S. version introduced.”
To this end, Apple is Ives’ “favorite name to play the 5G theme,” with the analyst arguing “a further re-rating of Apple’s stock is on the horizon as Cupertino heads into this transformational iPhone product cycle.”
If that wasn’t enough, AAPL’s services business is getting “new appreciation by investors, as Cook & Co. continue to flawlessly execute on the vision.” Ives added, “Into 2021, the services business will be a $60 billion-plus annual revenue stream and speaks to Apple’s ability to further monetize its golden installed base.” The upcoming release of new AirPods also represents another potential demand catalyst, in the analyst’s opinion.
Based on all of the above, Ives left his Outperform rating unchanged. Not to mention he bumped up the price target from $515 to $600. Should his thesis play out, a potential twelve-month gain of 20% could be in the cards. (To watch Ives’ track record, click here)
Looking at the consensus breakdown, 24 Buys, 7 Holds and 2 Sells have been assigned in the last three months. So, AAPL gets a Moderate Buy consensus rating. At $444.74, the average price target implies 11% downside potential. (See Apple stock-price forecast on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
This article was originally posted on TipRanks.
