Investors should buy Apple shares because the more expensive iPhone 8 launching later this year will drive earnings above expectations, according to Goldman Sachs, which reiterated its buy rating.
"The first $1,000 iPhone can drive meaningful upside," analyst Simona Jankowski wrote in a note to clients Thursday. "The bottom line is that we are raising our FY18/19 EPS estimates further above consensus. … While our FY18 iPhone unit estimate is relatively in-line (GSe 243mn vs. consensus at 242mn), we see significant upside in iPhone ASPs [average selling prices]."
She raised her Apple price target to $170 from $164, representing 10 percent upside from Thursday's close.
Jankowski expects the new iPhone 8 will offer premium features such as a 5.8-inch OLED display and 3-D sensing augmented reality technology. She predicts Apple will sell the 128 GB and 256 GB storage iPhone 8 models for $999 and $1,099, respectively, compared with the $749 price of the current 128 GB iPhone 7.
As a result, Jankowski estimates fiscal 2018 iPhone average selling prices will rise 16 percent year over year to $763 versus the $675 Wall Street consensus. She raised her Apple fiscal 2018 earnings-per-share forecast to $11.50 from $11.00 versus the Street average of $10.40.
"We think the higher demand for the larger (5.8") form factor will be supported by the fact that the iPhone 8 will have compelling new features not available in the smaller form factors," she wrote.