Apple Inc. (NASDAQ:AAPL) shares received a boost after KeyBanc Capital raised its rating on the iPhone maker to ‘overweight’ from ‘sector weight’.
Shares rose 1.12% to US$158.71 each in early US trading.
KeyBanc analyst Andy Hargreaves suggested Apple could offset stagnating iPhone sales growth with a more “subscription-like” strategy including Apple Music, TV and video subscriptions.
Hargraves, who downgraded Apple in June over concerns about the lack of growth in iPhone unit sales, set a target price of US$187 on the stock, up 19% on Friday’s closing price of US$156.99.
The analyst cited Apple’s ability to exercise pricing power in his decision to upgrade the stock.
“While we remain somewhat pessimistic around multicycle iPhone unit growth, Apple’s expanded market segmentation strategy seems likely to drive average gross profit per user above out previous expectations,” Hargreaves wrote in a note to clients.
“The potential for Apple to exercise greater pricing power, along with further App Store growth, supports the view of the company as a franchise with subscription-like qualities rather than a regular hardware business.”
He believes Apple’s most “inelastic” customers are likely to be the ones who look to purchase the iPhone X first.
He expects the device will lift average selling prices, which should please investors over the next few quarters and keep market valuations above historical averages.
The price of the iPhone X, which will be released on 3 November, starts at US$999 in the US and £999 in the UK.
Reports of production delays and later-than-expected release of the iPhone X have raised concerns that Apple’s sales could suffer in the near term but analysts remain mostly positive on the stock due to an expected increase in average selling prices.