Apple stock is an attractive buy, says KeyBanc. How stocks can soar 18%.

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Apple

shares were higher on Monday after analysts at KeyBanc Capital Markets began to hedge the stock with a bullish outlook, citing growth in the tech giant’s services segment.

Analyst Brandon Nispel valued the overweight stock with a price target of $ 191. The target shows an 18% increase over Apple’s (ticker:


AAPL

) Friday closing price of $ 161.84. The stock rose 3.2% to $ 166.97 on Monday.

Of the 42 analysts covering stocks studied by FactSet, 32 rated it Buy or Overweight, nine rated it Hold and one rated it Underweight.

“While AAPL is expensive relative to historical valuations, we find AAPL attractive relative to other mega-caps,” Nispel wrote on Monday.

The analyst described three main reasons for his bullish stance. Nispel doesn’t believe iPhone unit sales have peaked, with the 5G upgrade cycle potentially pushing Apple past its current peak; he thinks that the company has managed to increase the range of its products to reduce the reliability of iPhone sales; and he predicts that services will grow at rates many times faster than user growth.

The analyst predicts that Apple will have 1.09 billion active iPhones and 1.8 billion active devices installed by the end of the first quarter of fiscal 2022. This represents an increase of 7% and 8% from year to year, respectively.

“This shows a healthy growing user base where Apple’s iPhone market share is low compared to key geographies outside of the United States,” Nispel wrote. “As the installed base grows, a larger base can support more sales with lower upgrade rates. “

Apple’s international segment is expected to grow faster in the coming years as other countries adapt to 5G, sparking a wave of upgrades to compatible hardware, Nispel wrote. He estimates that every 1% increase in 5G upgrade rates could generate 11 million more iPhone sales.

As hardware adoption increases, so does Apple’s service business. The segment, which includes services such as Apple TV +, Music, News +, AppleCare, Advertising and Cloud, grew 27% in fiscal 2021. Over time, this could become a key driver of profitability, reaching over $ 100 billion by 2024, Nispel said.

Nispel acknowledged that Apple’s legal battles over the App Store were concerning, but that they were “probably more of a turn than a break.” The company has had to make modest changes to its App Store guidelines in response to court rulings and regulatory changes, including reducing its commission for some developers. It will likely make more concessions over time, such as allowing developers to provide third-party payment options, Nispel said.

“We expect the regulations to take time to implement and believe Apple’s competitive advantage is unlikely to be seriously compromised,” he added.

Write to Sabrina Escobar at [email protected]


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