Why One Analyst Says Apple Will Be “The Best Performing FAANG Stock” This Year

And why this analyst says AAPL could see nearly 70% upside over the next two years.

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Analysts are certainly sweet on Apple (NASDAQ: AAPL) as the stock inches ever closer to that elusive $1 trillion valuation mark. 

Since Tuesday, a total of 10 analysts boosted their price targets following the iPhone maker’s latest earnings report.

Apple reported fiscal Q2 revenue of $58 billion, yielding earnings per share of $2.46. Analysts had been expecting the company to report revenue of $57.5 billion and earnings per share of $2.36.

The Cupertino, CA-based company’s quarterly revenue and earnings were, however, down by 5% and 10% compared to the same period last year, though the results still topped estimates.

While iPhone and iMac revenue declined, by -17.3% and -4.5%, respectively, Apple is becoming less dependent on smartphone and computer sales to sustain top line results. iPad revenue grew by 21.8% year-over-year to $4.872 billion; wearables, home, and accessories grew by 30% year-over-year to $5.129 billion. And the company’s shift to services is paying off as its Services line item jumped by 16% year-over-year to $11.45 billion.

Apple CEO Tim Cook said this quarter was the best ever for the App Store, Apple Music, and iCloud, and said that AppleCare and Apple Pay have set performance records for March quarter revenue. Apple Pay usage more than doubled year-over-year, and looks set to see 10 billion transactions in 2019.

The company’s paid subscriptions—including everything form iCloud storage subscribers to peddling access to HBO Go’s streaming service—clocked in at 390 million, up from 120 million a year ago, with an increase of 30 million in just the last quarter alone.

“In a nutshell, the company is beating the Street and most importantly guiding stronger for June will put ‘major fuel in the engine’ for the bulls… and ultimately put shares on a path to make new highs in our opinion over the next 3 to 6 months,” wrote Wedbush Securities’ Daniel Ives in a note on Tuesday.  “The skeptics continue to scratch their heads at the meteoric move in Apple’s stock since early January lows and this report/guidance is just another major step in the right direction for [Apple CEO] Cook and Cupertino as they navigate near-term turbulence in China which appears to be slowly abating.”

Apple’s China business has turned around after the stimulus programs the country’s government injected into the economy. And according to Cook, the last weeks of the December quarter were a “trough” for the country.

“The one that got the most visibility that happened in early April was the [value-added tax] reduction from 16% to 13%, so it was a very aggressive move,” Cook said. “But there are other stimulus programs as well that likely have an effect at the consumer level.”

Gene Munster, founder of the venture capital firm Loup Ventures, liked Cook’s encouraging comments on China demand, and believes “investors are largely under appreciating what this stock could do.”

“There’s meaningful upside to the Apple story. I suspect that this year, Apple will be the best-performing FAANG stock,” Munster said to CNBC. “I think this can be closer to $350 [per share]. … I know historically it has not gotten the multiple. But I think that will slowly change.”

Munster, who covered the tech sector at Piper Jaffray for two decades, is considered to be one of the foremost experts on Apple and believes the tech landscape will drive the stock to new highs – especially once 5G phones finally become a reality. 

“The real hurdle, if you were going to boil this whole earnings call down to one number, it’s simply services growth,” Munster said. “I know this has been a particular… area of focus over the last couple of years. But it is even more important now, given some of the sizzle out of the iPhone story is a little muted for the next few quarters.”

“Longer term, there are obviously opportunities on services for products that they can have, whether it’s this gaming, this arcade service, or this video streaming service,” Munster said.

Munster’s target of $350 per share would see the stock gaining 67%, making him the biggest bull on the stock. 

Canaccord Genuity analyst T. Michael Walkley rates the stock a Buy and boosted his target price to $245 from $230. Walkley believes that the company’s ecosystem is strong for increased services opportunities.

“We believe Apple’s ecosystem approach including an install base which now exceeds 1.4B devices globally is leading to record services revenue, and we expect that higher-margin services revenue growth to continue outpacing total company growth,” Walkley wrote in a note.

“Given the continued near-term soft sales trends for the latest lineup of iPhones, we forecast 12% year-over-year unit decline in C’19 iPhone sales and anticipate 6% unit growth in C’20 based on an increasing installed base driving higher iPhone sales including those from the anticipated introduction of the 5G iPhone next fall,” the analyst wrote.

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