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Buy Apple because more expensive $1,000 iPhone X will boost its profit: Analyst

  • Piper Jaffray predicts Apple's earnings and the iPhone average selling price will benefit from its higher-priced offerings this year.
  • The firm recommends owning Apple shares based on the potential for strong demand for the new iPhone models, rising prices and favorable trends in services revenue.

Apple's rollout of two major new iPhone models this year will pay dividends for the company, according to one Wall Street firm.

Piper Jaffray reiterated its overweight rating and raised its price target for the smartphone maker, predicting Apple's more expensive iPhone offerings will boost its earnings.

Michael Olson, analyst at Piper, raised his price target for Apple shares to $196, which is 28 percent higher than Thursday's closing level. His old target was $190.

The higher-priced iPhone 8 and iPhone X should raise Apple's average selling price overall, Olson wrote in a note to clients Friday. "We recommend owning Apple on potential for a strong overall iPhone cycle, rising ASPs and a favorable services revenue trajectory."

Despite recent weakness this month, Apple is still one of the market's best-performing large-cap stocks so far this year. Its shares have rallied 32 percent through Thursday versus the S&P 500's 12 percent gain.

"If iPhone 8 is weak, it sounds crazy, but that can actually be a good thing because it means iPhone X could be stronger," Olson said on CNBC's "Power Lunch." "That would just be a positive mix shift for Apple as it shifts toward higher priced models."

The analyst estimates Apple's fiscal 2018 iPhone ASP will be $710 versus the $696 Wall Street consensus. As a result, he raised his estimate for the company's fiscal 2018 earnings per share to $11.11 from $10.68 compared with the $10.89 Street average.

"We believe the changes in iPhone X (vs. previous iPhone models), to both form and function, will be a catalyst to drive many new & existing iPhone users to consider an iPhone later this year," he wrote.

The iPhone X will be available on Nov. 3 at a base model price of $999.

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