Apple stock has had a great year, and Canaccord sees more potential gains, thanks to the success of the iPhone 11 and growth in the services business. The launch of Apple TV+ in November could give the stock an extra push.
The back story. Apple stock (ticker: AAPL) has rallied more than 43% in 2019, more than double the gains seen by the S&P 500, and ahead of the 29% rise of the Technology Select Sector SDPR ETF (XLK). It is the best-performing FAANG stock this year, beating Facebook (FB), Amazon.com (AMZN), Netflix (NFLX), and Alphabet (GOOGL), Google’s parent.
What’s new. On Wednesday, Canaccord analyst T. Michael Walkley reiterated a Buy rating on Apple and raised his price target by $20, to $260. Apple was up 0.8% to $226.16 in morning trading.
His recent research shows that the iPhone has held on to its leading market share at all four major wireless carriers in the U.S., making gains last month thanks to the iPhone 11. The success of the new model leads him to believe that earnings for the quarter could come in at the high end of the range Apple has told investors to expect.
Looking ahead. Stronger demand for the new phone prompted Walkley to raise his estimates for 2019 and 2020 earnings per share. “Despite near-term headwinds from some consumer willingness to wait for 5G iPhones in 2020 and ongoing trade tensions with China, we are encouraged by the stronger than anticipated initial demand for the iPhone 11 lineup and believe Apple will maintain its market share leadership of premium-tier smartphones,” he wrote in a note to clients.
Walkley also said that Apple could use at least some of the $7 billion it recently raised by issuing debt to increase stock buybacks or dividend payments.
Looking into 2021, Apple should benefit from the 5G iPhone cycle that will begin next year, the analyst said. He expects the services business, which has posted strong numbers following the launch of the Apple credit card, to continue to be a robust revenue stream for the company.
The launch of Apple TV+ next month could give the services business another push, he said. “We believe the pricing of Apple TV+, which is at the low end among competing services, could prove compelling depending on the content quality, and with a 1-year free subscription included with new Apple iPhone, iPad, Mac or Apple TV purchases, there is potential for a large and stable subscriber base out of the gate through 2020 and beyond.”
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