Wall Street has become increasingly bearish on Apple this year, a view represented by a beleaguered stock price and downgrades, but on Thursday, one firm bucked the pessimistic trend and upgraded the name to "buy," with a $540 price target.
Walter Piecyk, the analyst at BTIG responsible for the upgrade, spoke with CNBC's "Squawk on the Street" to discuss his view on why the stock has upside in the medium term. "The buy side wants to look towards 2014 where there could be earnings growth," he said.
"The Street went from basically thinking that (CEO) Tim Cook has to provide some revolutionary product to now assuming that he won't even do obvious things to generate revenue," Piecyk said. "There's clearly a revenue opportunity with a low-priced phone. I think it's logical that they will or they'll find other revenue opportunities in 2014. Frankly, if they don't, you're probably looking at another management team."
The risks of selling the stock now, Piecyk said, include the possibility that the company will announce a plan for using its cash reserves, Samsung's smartphone releases could be over-hyped, or that a new product may be announced this summer. "By not owning the stock, you're taking the risk that the Apple still won't rally on other items that will take it higher," he said.
"The market opportunity for Apple — that they don't address right now — is the 70 percent of the global subscriber base that is pre-paid. They want an iPhone," he said, citing mobile phone re-seller Gazelle, which that said there is an "insatiable" demand for cheaper iPhones in emerging markets.
"If Apple can address that market, that is incremental revenue and profit opportunity," he added.
Piecyk also assumes that a lower priced iPhone with lower margins would have little impact on Apple's overall margins, estimating a decline of 2 percent to 3 percent in the worst case. "This also provides a service revenue opportunity," he added, since the lower margin products would help to incorporate new users into the Apple ecosystem.
"There are a lot of people that see this opportunity for earnings growth in 2014. They are clearly fearful of the June guidance, which could be kind of ugly, but if you're going to buy on the June guidance, maybe the downside is limited as a result," he said.