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Credit Suisse's Garcha bullish on Apple after upgrade

Several factors were considered by Credit Suisse before it upgraded Apple's rating from "neutral" to "outperform" Tuesday, according to an analyst.

The first reason Apple's stock was upgraded is because of its excessive cash levels, which suggest a $200 billion return program is due soon, Kulbinder Garcha, managing director of Credit Suisse, told CNBC's "Squawk Alley" on Tuesday. "Apple first implemented its cash return program in 2012, and at that time they had roughly $110 billion of net cash," he said. "By our estimates, they're going to have $143 billion come this April."

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Apple CEO Tim Cook speaks in Laguna Beach, Calif.
Lucy Nicholson | Reuters
Apple CEO Tim Cook speaks in Laguna Beach, Calif.

Garcha added the second reason the stock was upgraded is because of its free cash flow. "Their free cash flow is higher than in 2012 at $50 billion per year," he said. "I think the Street is not currently factoring these in."

Another reason why Apple's stock was upgraded is because Credit Suisse expects iPhone sales to continue growing. "Based on our proprietary segmentation analysis, we show that iPhone's gross profit can grow by 42 percent or $18 billion over 2015," Garcha said.

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Garcha also said that Apple Watch sales will help the company's stock, despite the uncertainty surrounding the new product. "I think the uses for this device are somewhat unknown, and the applications that exist on the fitness and health sides could be tremendous."

Garcha added that the downside to buying Apple's stock moving forward is minimal. "The near-term outlook for this company, based on all the supply-chain noise coming out of Asia in the past two months, looked very supportive," he said. "I just don't see significant downside."

—CNBC's Michael Bloom contributed to this report.