In a report published Monday, analysts at Brean Capital initiated coverage of Apple Inc. (NASDAQ: AAPL) with a Buy rating and a price target of $160.

Brean Capital is optimistic about Apple's ability to deliver significant EPS upside of 15-20 percent, driven by higher than anticipated iPhone shipments through 2017, favorable gross margins from the iPhones and iPhone mix, as well as opex leverage at least throught 2016, as the recent iWatch and iPhone 6 investment cycles bear fruit.

"Additionally, we believe AAPL will continue to use capital return materially the next few years and that this can both catalyze and provide a floor under the stock," the analysts said.

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The analysts also expect the company to post revenue upside of 10-15 percent through 2017, while reducing its share count by 10 percent, annually, and increasing its dividend by 10 percent, annually, for the near term.

The Street projections on iPhones are currently low through 2017. According to the analysts, there is gross margin upside through 2017 as well.

"This is predicated on two reasons: 1) we believe that iPhones carry 45% GM vs. AAPL corporate GM of 40% and 2) we believe that Street is under-estimating the % of iPhone ships that are the 60% GM iPhone 6 Plus (which we believe could be up to 1/3 of iPhone unit ships; we believe Street could be closer to 25%+ mix wise)," Brean Capital explained.

Apple's opex dollar leverage is also underestimated in general at present and could contribute to EPS upside in 2016 and 2017. "We now expect AAPL can ramp back down and realize operating leverage for both the iPhone 6 and the iWatch," the analysts added.

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