Apple is trading just about where it was a year ago — at around $113 per share.
However, Citi analyst Jim Suva believes that the stock can trade higher in 2017. He outlines five factors as to why the stock is worth his $130 price target and “buy” rating in a note distributed to clients on Tuesday.
The factors he sees working in Apple’s favour are:
1. The iPhone 8 could trigger a “Super Upgrade Cycle.”
As we’ve covered before, the possibility of a highly upgraded iPhone 8 with a new form factor and better screen could combine with the masses of current iPhone users waiting to upgrade to produce a boom cycle for iPhone sales.
2. Tax reform
Suva believes that a reduction or simplification of the US corporate tax code, as president-elect Donald Trump is signalling, would benefit Apple. Even better, if Apple were allowed to repatriate its income at reduced rates, that could drive a “10% earnings per share benefit.”
3. Apple services
Suva points to Apple’s growing services business , which generates recurring revenue from subscriptions that Apple users sign up for — like $9.99 per month for Apple Music, or $5 per month for iCloud — as a bright spot for Apple.
4. Enterprise and India
Suva says that Apple is making in-roads selling iPhones, iPads, and Macs to other businesses — it has IBM and Deloitte to help it grow in that world. He also says that Apple’s nascent India effort, which he calls “Applewood,” will “eventually become material,” if India can install the high-speed wireless networks that iPhones require for a good experience.
Apple “shares trade at a slight discount to their 4 year median multiples despite improving fundamentals ahead,” according to Suva.
Ultimately, Citi does not see “any surprises” coming up in the next two quarters for Apple, and an updated forecasts Apple profit continuing to rise through 2019.
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