Wedbush analyst explains street high price target

Wedbush analyst Dan Ives earned the unofficial title of Wall Street’s biggest Apple Inc. (NASDAQ: AAPL) after setting a base case $600 price target and a $700 target under a bull case scenario. 

The thesis

Apple will continue facing near-term headwinds from the COVID-19 pandemic as consumer demand trends remain unclear, the analyst explained in a research report. But over the next 12 to 18 months, the iPhone maker will face a “once in a decade” opportunity to rake in tens of billions of dollars in sales.

Approximately 350 million of the 950 million iPhone devices are getting old and due for an upgrade. One out of five iPhone upgrades will come from China as the country remains a “key ingredient in Apple’s recipe for success.”

Apple, the analyst further noted, is the research firm’s “favorite name” to gain exposure to the 5G cycle. 

Investors that want to take advantage of what the analyst describes as an upcoming “transformational” iPhone upgrade cycle may want to read this guide on how to buy Apple’s stock.

Ives’ was the analyst guest of the day on CNBC’s “Fast Money” to field questions from host Melissa Lee.

Question: What is new in the note?

It was always a given that Apple would launch a 5G device but recent supply chain checks in Asia over the past three to four weeks confirm an uptick in demand, the analyst said. The observations further validate the research firms’ estimates that 350 million iPhones will be upgraded.

Question: Is Wedbush merely outbidding other research firms with price targets?

Cowen analysts had the Street’s highest Apple price target of $530 for one day until Ives’ Wednesday report. But Ives said his new price target is merely consistent with a view held over five years that Apple’s stock will warrant a higher multiple over the coming years.

If new checks within Apple’s supply chain start to paint a different picture, Ives suggested a shift in stance accordingly.

But there is little doubt that in one year from now Apple’s stock price will “have a six in front of it,” he said.

Question: How does the services business fit in?

Apple’s growing services business has been a major component of the bull thesis for quite some time. The margin-rich business will live up to expectations as early as next year when it will generate at least $60 billion in annual revenue streams as Apple becomes better at incrementally monetizing its installed base. 

Regardless, Apple’s “core DNA” will always be a new iPhone cycle, the analyst said. Coupled with the services business, Apple is able to present investors with a compelling “one-two punch.”