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Buy Apple because the iPhone 8 'super-cycle' is ahead, Credit Suisse says

  • Credit Suisse recommends Apple shares because the premium-priced iPhone 8 will drive earnings above expectations.
  • The company's shares are up 33 percent year-to-date through Monday compared with the S&P 500's 7 percent return in the same time period.
Apple iPhone 7 mobile phones being sold.
Getty Images
Apple iPhone 7 mobile phones being sold.

Investors should buy Apple shares because the premium-priced iPhone 8 will drive earnings above expectations next year, according to Credit Suisse, which reiterated its outperform rating.

"We remain convinced that the iPhone product cycle will be significant in terms of driving multi-year unit growth, and maintain our conviction on Apple's ability to introduce new higher pricing tiers with improved mix," analyst Kulbinder Garcha wrote in a note to clients Tuesday entitled "8 Super-cycle – rising demand, rising price."

Garcha cited how the iPhone installed customer base has doubled to nearly 700 million users since 2013.

"Given this, as well as a high retention rate, we see the 8 Super-cycle will unleash pent-up demand," he wrote.

As a result, Garcha raised his fiscal 2018 Apple earnings-per-share estimate to $11.62 from $10.77 compared with the Wall Street consensus of $10.44.

The analyst also reaffirmed his Apple price target of $170, representing 10 percent upside to Monday's close.

"Apple has historically raised iPhone prices along with key updates," he wrote. "Given its affluent user base, a significant feature upgrade, limited price elasticity shown so far, as well as Samsung's higher pricing points of the Galaxy S8 devices, we believe our pricing assumptions could prove conservative at $670/$770/$900 for three tiers of the new phones."

Consequently, Garcha projects Apple's iPhone average selling price will rise to $704 in 2018 compared with $647 in 2016.

The company's shares are up 33 percent year to date through Monday compared with the S&P 500's 7 percent return in the same time period.