There's A Solid Risk/Reward Setting Up In Apple Right Now

Credit Suisse reiterated its Outperform rating and sees solid risk/reward for Apple Inc. AAPL shares following its blowout quarter as iPhone returned to growth after three quarters, coupled with strong Services performance.

Apple reported a solid EPS beat of $0.14 along with nearly a $1 billion beat for revenues. The company exceeded estimates for iPhone sales of 76 million, selling 78.3 million.

“With the iPhone returning to growth and Services again showing stellar growth (with management expecting Services revenue to double in 4 years), we believe our thesis is intact,” analyst Kulbinder Garcha wrote in a note.

Garcha, who has a price target of $150 on shares, expects an iPhone 8 super cycle and sustainable free cash flow of about $67 billion over long-term, given high retention rates, a superior ecosystem, and a multi-product compute advantage.

For the first quarter, iPhone units grew 4.7 percent to 78.3 million and the analyst now sees 54 million units next quarter, up 5.5 percent year-over-year. Apple noted that the iPhone 7 Plus recently found supply and demand balance and the analyst forecast an installed base of about 1.4 billion long-term.

“[O]ur installed base analysis suggests that strong growth of the installed base in the past three years will be a key driver of future growth in 2018, driven by an iPhone 8 super cycle. Given this, we project iPhone units of 233mn/249mn/264mn in CY17/18/19,” Garcha highlighted.

Another bullish thesis on Apple is its growing Services revenue. Apple reported 30 percent growth in Services, with App Store recording 43 percent growth.

In fact, Apple expects Services revenue to double over the next four years, while the analyst sees potential for the segment to represent one-third of gross profit in long-term versus the current 20 percent.

Following better-than-expected quarterly performance, Apple shares touched a new 52-week high of $128.30. At last check, they gained 5.62 percent to $128.17.