Investment bank RBC Capital Markets upped its price target on Apple (AAPL) stock after reviewing the company's fast-growing services business.
RBC analyst Amit Daryanani reiterated his outperform rating on Apple and raised his price target to 155 from 140 in a note to clients Tuesday. Apple closed up 1.1% at 140.46 on the stock market today.
"Apple's Services business has the potential not only to lift gross margins but to reduce cyclicality, further strengthen the Apple ecosystem and expand the range of strategic alternatives at management's hand," Daryanani said.
Apple's services include the App Store, iTunes, AppleCare, Apple Music, Apple Pay, among others. Services are the company's fastest-growing unit. In the company's fiscal first quarter ended Dec. 31, Apple's services generated $7.17 billion, up 18% year over year. Services accounted for 9.2% of Apple's total sales in Q1.
IBD'S TAKE: Apple stock has an IBD Composite Rating of 82, meaning it has outperformed 82% of stocks in key metrics over the past 12 months. For more information on Apple stock, visit the IBD Stock Checkup.
Apple plans to double its services business over the next four years, reaching $48 billion to $50 billion in sales in fiscal 2020. Apple's services generated $25.5 billion in revenue over the last 12 months.
Services growth is just one tailwind for Apple shares, Daryanani said. Others include revisions to Apple's capital return program and the upcoming iPhone 8 sales cycle, he said.
Last week, Apple stock earned price-target increases from investment banks Citi and Credit Suisse.
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