UBS increases Apple price target to $115, sees gross margins improving in 2015

Analyst Steven Milunovich sees upside to Apple's gross margins both immediate-term and heading into 2015. For example, he cited recent data from Consumer Intelligence Research Partners which showed the high-end iPhone 5s taking a greater share of overall handset sales than the iPhone 5 did a year ago.

The data also suggests that customers bought higher capacity iPhones in the June quarter — a period where customers are typically looking to save money with less storage.

And finally, Milunovich noted that consumers have been embracing the full-size iPad Air, which starts at $499, which reverses a trend toward the cheaper iPad mini starting at $299 without a high-resolution Retina display.

The analyst sees those trends improving margins not only in the near-term, but also headed into Apple's fiscal year 2015. He has increased his forecast for next year's gross margins from 36.6 percent to 38.1 percent, citing four key reasons:

• Waning of pressure from step-up in deferred revenue along with lower warranty expenses
• Better fixed cost absorption than Apple saw with the iPhone 5
• Strong mix of high-end iPhone
• Speculation that margins on a so-called "iWatch" could be greater than 40 percent

He sees Apple posting 15 percent revenue growth in fiscal 2015 to $211 billion, including sales of a rumored "iWatch." His forecast calls for the company to see a 19 percent gain in earnings per share to $7.63.

Milunovich's new 12-month price target of $115 is an increase from his previous projection of $100. UBS joins a parade of investment firms that have upped their targets, with Barclays ($110), Evercore ($115), Morgan Stanley ($110), J.P. Morgan ($108), and Needham ($97) revising their projections upward in the last month alone.