Apple (AAPL) should have a good year in 2017 thanks to continued services growth and the release of its 10th anniversary iPhone, investment bank Piper Jaffray said Friday.
Piper analyst Michael Olson assumed coverage of Apple with an overweight rating and price target of 155, both unchanged from his predecessor Gene Munster. Munster is leaving Piper Jaffray to start a venture capital firm.
"Our confidence is based on an expectation for growing anticipation around iPhone X (aka iPhone 8) and a favorable long-term trajectory for services growth," Olson said in a research report.
Apple's 10th anniversary iPhone is expected to sport a major redesign that features a glass enclosure and edge-to-edge OLED display. Most analysts have referred to this 11th-generation iPhone as the iPhone 8, but at least one is calling it the iPhone 7S on the expectation that changes to the design will be minor. Munster referred to the upcoming handset as the iPhone 10.
IBD'S TAKE: Apple stock has an IBD Composite Rating of 47, meaning it has been outperformed by 53% of stocks in key metrics over the past 12 months. It has been forming a flat base for the last nine weeks, with a buy point of 118.79. For more information on Apple stock, visit the IBD Stock Checkup.
Apple stock rose 0.1% to 115.97 on the stock market today, eyeing a buy point of 118.79 out of a flat base.
Some investors are concerned that Apple might miss iPhone sales estimates for the first half of the year because of relatively little innovation in the iPhone 7 and buyers holding out for the next version, Olson said. But he says Apple can beat iPhone growth estimates in the first half because of easy year-over-year comparisons.
"Should there be a first-half fiscal 2017 iPhone hiccup, however, we expect minimal downside as investor focus narrows on iPhone X," Olson said. "In other words, given proximity to iPhone X, any issues in first-half fiscal 2017 could be overshadowed by anticipation for next fall's launch, providing a favorable risk/reward for Apple."
Olson is bullish on Apple's services business, which includes Apple Music, Apple Pay, iCloud backup and other offerings.
Services accounted for 11% of Apple's total revenue in its fiscal year ended Sept. 24, or $24.3 billion. Services revenue rose 22%, where Apple's overall revenue fell 8%.
"The company has previously indicated that the services business will be big enough to be a Fortune 100 company in fiscal 2017," Olson said. "This would imply services revenue of over $28 billion next year."
Hitting that revenue level in fiscal 2017 would require year-over-year services growth of 16%, compared with 24% reported in the September quarter, he said.
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