Apple reported blowout earnings for the December quarter Tuesday.
In a research note Wednesday morning, Citi analysts give six reasons why they maintain their buy rating for the stock and why it can still go higher.
Here’s the breakdown.
- People are upgrading sooner. Wireless carriers now make it easier to get a new iPhone even before a contract is up, so people don’t have to wait two years to get the latest and greatest iPhone.
- Apple beat expectations by 11% on sales and 18% on EPS. Yet the stock “is not expensive as it trades at 13x forward earnings or 10.4x excluding cash of $US25 per share and we note the S&P500 is trading at 16.7x forward earnings,” according to the note.
- Apple is essentially forcing people to spend $US100 extra on iPhones to get the 64GB. The entry-level iPhone only has 16GB of storage, which isn’t enough for most people.
- Apple Pay and Passbook are going to be huge, especially as they expand to other areas like letting you open your hotel room door, participate in loyalty programs, and enter mass transit systems.
- Apple is focusing on selling iPhones and iPads to enterprise customers thanks to its recent partnership with IBM. This is a potentially large area of growth for Apple.
Citi is also cautiously optimistic about the Apple Watch, which is due to launch in April. However, the note says the reports of poor battery life and missing features like built-in GPS could turn some potential customers off.
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