Here's Why Apple Is Drexel's Top IT Pick For 2018

Drexel Hamilton has named Apple Inc. AAPL as its top pick in the IT hardware and software sector in 2018.

The Analyst

Drexel Hamilton analyst Brian White has a Buy rating on Apple with a $235 price target.

The Thesis

Despite 2017's strong performance and concerns surrounding iPhone order cuts, Apple is on track to gallop past the $1 trillion market cap mark in 2018 thanks to a host of catalysts, White said in a Tuesday note. (See the analyst's track record here.) 

Apple can hit the $1-trillion mark through further progress in revaluation; heightened capital distribution opportunities after tax cuts in the U.S.; new innovations; a return to annual sales growth in Greater China; and further progress in the ultra-luxury smartphone market, White said. 

Apple's journey into the ultra-luxury market through the launch of the iPhone X creates a durable cycle, and White said he expects "more innovations" from Apple in 2018. 

"We believe the iPhone X (and this year's new iPhone innovations) will drive an upward trajectory in ASPs and opens up the opportunity for gross margin surprises over the next 12-24 months." 

Drexel Hamilton also views Face ID as a major innovation that could be extended across Apple's product line in 2018.

The firm projects iPhone unit growth to accelerate from 2 percent in 2017 to 15 percent in 2018.

The Apple ecosystem is expected to be further enhanced in 2018 with HomePod and positive Apple Watch momentum, White said. HomePod, which the analyst expects to be available early this year, will become popular in 2018 and further enhance Apple's expansive digital matrix, he said. 

Drexel Hamilton projects that Apple will positively surprise its investors with its capital distribution initiative in 2018, given the recent tax legislation signed by President Donald Trump. Apple already used about $234 billion of the $300 billion it targeted to return to shareholders by March 2019, White said. 

The Price Action

Apple shares gained 46.11 percent in 2017.

At the time of writing, the shares were up 1.23 percent at $171.31.

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Photo courtesy of Apple.