Yet another analyst raise AAPL target price, this time based on expected Services growth

Yesterday, a Morgan Stanley analyst expressed just how big of an impact the upcoming iPhone 8 could have on Apple’s stock price and unit sales. Now, RBC analyst Amit Daryanani has expressed his own bullish attitude towards AAPL, but his expectations are based almost entirely on Apple’s Services sector.

In a note to investors, obtained by Barron’s, Daryanani explained that Apple’s Services category could be a $50 billion business by the 2020 fiscal year. The analyst explained that one of the biggest benefits of Services is that it converts sales into profit at a higher rate than the rest of Apple’s sectors.

Specifically, Daryanani wrote that he sees the strongest potential for upside if Apple continues to “increase its mix of higher margin, less cyclical services over time.” Daryanani is essentially saying that Apple should rely more on the higher margin Services than on hardware, which is released at a regular cycle, like the iPhone being released every fall.

“We see potential for upside to Apple’s current valuation if the company were to continue to increase its mix of higher margin, less cyclical services revenue over time,” Daryanani wrote. He thinks investors could be willing to pay 17 times each dollar of earnings. Apple’s profit-to-earnings multiple currently is closer to 15.

Based on his bullish attitude towards Services, Daryanani raised his target price for AAPL to $155 from $140. For comparison’s sake, AAPL closed at $140.46 today.

Daryanani’s predictions for AAPL come on the heels of several other prominent analysts who have expressed optimism towards the company’s future, largely thanks to the upcoming iPhone 8. Kate Huberty of Morgan Stanley yesterday predicted that Apple would see unit sales rise 20 percent in fiscal 2018 because of the iPhone 8. Citi also raised its target AAPL price from $140 to $160 based on the iPhone 8 “super cycle.”

Apple itself has put an intensified focus on Services throughout the past year due to slowing hardware sales. Speaking at a Goldman Sachs event last month, Apple CFO Luca Maestri stated that Services is currently the size of a Fortune 100 company and that Apple expects to double it over the course of the next four years. During Q1 2017, Apple reported Services revenue of $7.2 billion, up 18 percent year-over-year.

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