Look for Apple's upcoming buybacks, services and China business to vault the stock, says analyst

  • Apple's three advantages — popularity in China, a growing services business and a war chest of cash — provide a clear path forward for the company, according to GBH Insights analyst Dan Ives.
  • The analyst expects three new iPhones to be released in 2018, and expects Apple's services business will hit $50 billion annual revenue by 2020.
  • Apple has said it aims to become "cash neutral," which could mean huge dividends and share buybacks, plus 60 million to 70 million Chinese iPhones are due for an upgrade.

Tim Cook
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Tim Cook

Wall Street is apparently done panicking over Apple. And now that the stock has bounced back from recent lows, three of the company's advantages — popularity in China, a growing services business and a war chest of cash — provide a clear path forward, according to GBH Insights analyst Dan Ives.

"[O]n the heels of a broader market snapback, we believe the Street is finally seeing the forest through the trees as the March guidance hangover appears to have dissipated," Ives wrote in a Friday research note. "Importantly we estimate Apple has roughly 350 million iPhones that are in the window of opportunity to upgrade over the next 12 to 18 months, now it's about which model and price point 'strike a chord' for these customers to ultimately upgrade as the iPhone X demand has softened."

Ives put a price target of $205 on the stock, well above the $174 it was trading at on Friday. (Also above the average price target of $192, according to FactSet.)

Apple shareholders have indeed been on quite the ride over the last month amid iPhone X worries.

The company's shares whipsawed after fiscal first-quarter earnings were reported earlier this month. Guidance for the March was weaker than expected, and iPhone shipments were down slightly during the quarter. But, on the plus side, average selling prices rose, and executives shared more details than usual about the companies future plans, reassuring investors that "iPhone revenue will grow double-digits as compared to last year."

Pair those mixed signals with an especially volatile market, and it's no wonder that Wall Street became a bit overwrought. But according to Ives, investors can now put all that behind them.

Ives expects three new iPhones to be released in 2018, models that will help capture any customers who were scared off by the pricey iPhone X. Plus, Ives wrote, Apple's "unparalleled consumer franchise" should help it woo owners of the 60 million to 70 million Chinese iPhones that are due for an upgrade.

Apple is also investing heavily in its services division, which includes Apple Music, Apple Care and the App Store. Ives expects that business will hit $50 billion annual revenue by 2020.

Then there's the cash — the hundreds of billions of dollars that Apple can now bring to the U.S. under a favorable tax plan.

Apple has said it aims to become "cash neutral," which could mean huge dividends and share buybacks, UBS analyst Steven Milunovich wrote earlier this week. That outcome means more good news for investors, Ives said.

"In a nutshell, while this is a hand-holding period on the name, we believe near-term turbulence does not change our long-term bullish thesis on Apple," Ives wrote.

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