3 Bullish Takeaways On Apple And The iPhone

Kulbinder Garcha of Credit Suisse maintained an Outperform rating on Apple Inc. AAPL with an unchanged $170 price target after taking a closer look at the company's outlook and coming to three bullish conclusions.

First, Credit Suisse's Asia team cited a slight uptick in overall iPhone production in the bottom half of 2017 from 145 million units to 156 million units. Accordingly, Apple's full-year production rate is expected to be 241 million units, up from a prior estimate of 232 million.

Second, the analysts are expecting total iPhone 8 builds to be 112 million units in the bottom half of 2017, which implies "material upside" to the analyst's sell-in unit estimate of 90 million units.

Third, the average selling price (ASP) of iPhone units could tick higher on a more favorable product mix of OLED models which could account for 56 percent of total unit sales, Credit Suisse's Asia team found. However, this does mark a decrease from 60 percent based on prior checks but it's still "meaningfully ahead" of the analyst's assumption of 45 percent. As such, the analyst's iPhone ASP assumptions of $676 in calendar year 2017 and $704 next year could prove to be conservative.

No Change To Valuation

Despite a bullish tone, Garcha noted a change in the valuation approach to Apple's stock could take time given Apple's Services growth and an installed base growing to 1.5 billion users over the long term. Apple's business will be an "annuity like free cash flow" with a sustainable revenue rate of $75 billion which justifies a valuation of $170.

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