Here's what people don't understand about Apple right now, according to Citi

Apple analysts are underestimating the company says, Citi analyst Jim Suva.

“Apple reports on Monday, April 27, after the market close and we believe the company will beat consensus sales by at least $US1 billion, and iPhone unit shipments by at least 5% and at least a 2% EPS beat versus consensus (even after factoring in an estimated -6% year over year currency impact to financials),” says Suva in a new note.

He gives 5 reasons, plus a “bonus” reason that he thinks Apple’s stock is going to soar. He calls Apple one of Citi’s “highest conviction stock ideas”.

Here are his reasons for being a mega bull:

1. “Device Acceleration”. Basically, people are still buying a lot of iPhones. In the recent past, Apple has seen an explosion in iPhone purchases during the December quarter, then a sharp drop in the March quarter, and a gradual decline for the next two quarters. There will be a drop for the March quarter, but it won’t be as severe as it has been in the past. One reason Apple is selling a lot of iPhones is that carriers have changed their upgrade policies. Previously, iPhone owners had to wait 2 years or more, now they can do it sooner. Suva says analysts haven’t fully grasped this idea.

2. Analyst estimates are going to get jacked, and Apple’s valuation is low. Apple is trading at 14X forward earnings, while the S&P 500 trades at 17X. Suva thinks that gives Apple room to grow. He also thinks analysts are too conservative and will soon have to raise their estimates.

3. Gross margins are growing. Apple sells three storage options: 16 GB, 64 GB, and 128 GB. Each step up in storage costs consumers an extra $US100. It only costs Apple $US20, so that’s $US80 in profit. The 16 GB phone is basically useless since it gets filled with photos quickly. As a result, everyone is paying up for the 64 GB or 128 GB phone, which is leading to a big expansion in gross margins.

4. Apple Pay/Passbook. This seems to be based largely on potential. Apple Pay is starting to gain traction, and in the long run it can be a nice business for Apple. Further, Suva thinks Passbook will be useful for all sorts of things.

5. Enterprise opportunity. For as long as we can remember, people have been saying Apple is on the cusp of cracking into the enterprise. This time might be different because Tim Cook is a little bit more attuned to enterprise needs than Steve Jobs ever was. Apple has also done a deal with IBM to make enterprise apps for the iPad, which should help.

6. BONUS: Apple Watch! The Apple Watch comes out this year, and Suva is calling for just 7 million units in Apple’s fiscal 2015. However, he thinks it could add a nice boost to the stock.

7. Double bonus: Apple TV. Suva doesn’t mention Apple TV, so we’re doing it for him. There is talk of an Apple TV update coming this year. It’s unclear if that will lead to much in terms of revenue from unit sales. However, it will be exciting, and it should add to Apple’s services revenue.

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