Wedbush Adds Apple To Best Ideas List, Sees Opportunity In iPhone Upgrades Next Year

Heading into 2019, the Street is expecting Apple Inc. AAPL to ship around 220 million iPhone units, but this estimate is likely to prove conservative and could be overlooking a much larger "window of opportunity," according to Wedbush.

The Analyst

Wedbush's Daniel Ives initiated coverage of Apple with an Outperform rating and $310 price target. The firm added Apple to its Wedbush Best Ideas List. 

The Thesis

Apple could outperform expectations of shipping about 220 million iPhone units in 2019 due to strong demand, but over the next 12-18 months there are 350 million iPhone devices due for an upgrade, Ives said in the initiation note. (See his track record here.) 

If Apple captures a substantial portion of this opportunity, it will make 2019 a successful iPhone cycle and "lay the groundwork" for service and software growth opportunities ahead, the analyst said. 

Encouragingly, iPhone users in China will be "front and center" in the next round of global device upgrades, as Wedbush's firsthand checks and analysis in Asia suggest "a successful initial trajectory," Ives said. 

Apple's services business is a "high octane fuel" and is on track to hit $50 billion in annual revenue by 2020, he said. This reinforces Cupertino's commitment to generate new revenue streams from existing products, the analyst said. 

Apple is likely to show more than $250 billion in cash on its balance sheet after this quarter, which implies the potential for increased cash returns to shareholders through dividends and buybacks, Ives said. 

Investors can realistically expect to see Apple becoming active on the M&A front, especially in content, as it is trailing Netflix, Inc. NFLX and Walt Disney Co DIS in the competitive "content arms race, in Wedbush's view. 

Price Action

Apple shares were up 2.18 percent at $220.74 at the time of publication Friday. 

Related Links:

What A Slowdown In China Means For Apple

RBC, Bank Of America Surveys Paint Bullish Picture Ahead Of Apple's Q4 Print

Photo courtesy of Apple.