Apple Analyst: iPhone Manufacturer Warrants Premium To The S&P 500

After remaining on the sidelines of Apple Inc AAPL for nearly two years, Loop Capital Markets turned bullish Monday on a forecast for strong product and services growth from Cupertino. 

The Apple Analyst: Ananda Baruah upgraded Apple from Hold to Buy and increased the price target from $110 to $131.

The Apple Thesis: Apple shares have historically outperformed in terms of consistently outperforming Street expectations or recovering when negative trends, especially with respect to iPhone shipments, stop worsening, Baruah said in a Monday upgrade note.

Apple's iPhone build plans for December through June 2021 suggest material shipment upside, the analyst said. 

The build plans translate to iPhone unit shipments of 78 million, 54 million and 46 million, respectively, for the December, March and June quarters, he said. 

This would mean iPhone revenues of $59.3 billion, $40.3 billion and $30.4 billion for these quarters, Baruah said.

The analyst said he sees incremental strength in ASP and margin due to iPhone 12 Pro demand.

Mac and iPad sales are also likely to see upside, according to Loop.

Specifically, Mac unit numbers and revenue are estimated at 7 million and $9.8 billion in the December quarter, and 6 million and $7.5 billion in the March quarter, he said. 

With Apple's share gains with consumers and in enterprise thanks to new Apple silicon Macs, some of the strength in Macs could be sustained, even with a COVID-19 vaccine on the horizon, Baruah said.

Related Link: Apple Analysts See 'Once In A Decade' Opportunity Ahead Of iPhone 'Supercycle'

Loop said it sees potential for consistent upside in Services on the basis of continued installed base growth.

The firm estimates Services revenue growth of about 15% through calendar year 2021.

Apple has incremental revenue opportunity from Apple Watch, AirPods and potentially Air Tags if it begins shipping in calendar year 2021, Baruah said.

Build plans for Apple Watch and AirPods have grown, the analyst said, citing the firm's supply chain analyst John Donovan.

Loop raised its calendar year 2021 EPS forecast from $3.89 to $4.23.

With a broad tailwind of product and services growth, the firm said it sees Apple's shares sustaining a valuation premium to the S&P 500.

"If our thesis proves correct and product outgrowth sustains well into CY21 driving accelerated growth in high-margin services sales, the expanded premium is warranted."

AAPL Price Action: At last check, Apple shares were up 3.24% to $120.36.

Related Link: Apple's Q4 Results Exceed Expectations As Services Strength Offset Weak iPhone Sales

Photo courtesy of Apple.