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Apple Stock: Headed to $190?

By Daniel Sparks - Dec 20, 2017 at 3:16PM

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One analyst has some good reasons to be bullish on Apple stock.

Apple (AAPL -1.80%) stock has been on a tear recently, rising about 50% in the past 12 months on the back of a strong fiscal year 2017. But one analyst believes there's still room to run, and the reasons for his bullishness are sound.

RBC Capital analyst Amit Daryanani reiterated an outperform rating and a $190 price target for Apple stock this week, citing robust demand for the iPhone X in China and improving supply demand balance for the new device. Here's a look at Daryanani's most compelling reasons to be bullish on Apple stock (via Tech Trader Daily) -- and why these reasons make sense.

Customers holding a new iPhone X at an Apple store in China.

There is strong demand for the iPhone X in China. Image source: Apple.

Demand for iPhone X is strong in China

Daryanani said demand for iPhones outside the U.S. is "very strong," and that demand for the iPhone X is particularly strong in China. An impressive 62% of respondents in China said the iPhone they were interested in buying was the iPhone X.

This is particularly notable considering the iPhone X's high price point, which starts at $999 in the U.S.

Chinese consumers want versions with the highest storage

Perhaps even more surprising is the significant percentage of surveyed prospective iPhone X buyers in China that are willing to buy the highest-priced version with 256 GB of storage. Daryanani said 66% of prospective iPhone X buyers in the market are planning to buy the 256 GB model. Similarly, a notable 64% of prospective iPhone 8 and iPhone 8 Plus buyers plan to buy the 256 GB version.

Remarkable demand for iPhone X in China follows Apple's recent return to growth in its Greater China operating segment during the fourth fiscal quarter of 2017. While Apple's Greater China segment includes Hong Kong and Taiwan in addition to China, it still helps preview how China is doing since the country likely represents a significant portion of this segment's sales. Revenue in Greater China during Q4 climbed 12% year over year. That compares to a 10% year-over-year decline in the segment in Q3, and a 14% decline in Q2.

In Apple's fiscal 2017 fourth-quarter earnings call, Apple CEO Tim Cook said the company posted unit growth and market share gains for the iPhone, iPad, and Mac in Greater China during the quarter. In addition, Cook said it was a record quarter for Mac and services revenue in the region.

While Apple didn't disclose much information about mainland China during its fourth-quarter earnings call, it did say that it saw double-digit year-over-year growth in iPhone unit sales in mainland China during the quarter.

Considering this optimistic backdrop for Apple's recent performance in China and the broader Greater China segment, there's likely some substance to Daryanani's findings. Strong demand for iPhone X in China would extend Apple's recent momentum in the important market.

Apple's Phil Schiller standing on stage in front of a screen showing a very large iPhone X.

Image source: Apple.

iPhone X production has ramped up significantly

Daryanani also mentioned the rapid improvement in iPhone X supply, evidenced by huge progress in iPhone X shipping times since the device's launch in November. When the iPhone X was launched, estimated shipping times for the device were three to four weeks. But now it looks like the iPhone X may have reached supply demand balance ahead of Christmas -- an impressive feat considering the flagship iPhone was launched over a month later than Apple's typical launch window for new iPhones.

When adding these reasons to be bullish on Apple stock with the fact that iPhones account for well over half of the tech giant's revenue and operating income (making growth in the segment significantly accretive to earnings) and the stock's conservative valuation, Apple stock does look compelling.

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