RBC raises Apple price target to $120, predicts Apple Watch will earn $10B in first-year revenue

RBC Capital Markets on Monday increased its price target for Apple stock to $120 per share, a number that incorporates the investment firm's expectations for the upcoming Apple Watch, predicted to sell 20 million units in its first 12 months.

With shares of AAPL already close to its previous price target of $115, the new estimate gives RBC some room to spare after the stock's recent gains. Apple stock has been trading at an all-time high, both in terms of share price and market capitalization.

RBC Capital Markets sees the Apple Watch selling 20 million units in its first 12 months at an average price of $520.

RBC analyst Amit Daryanani said on Monday that his new price target incorporates estimates for the Apple Watch, which he expects will launch around March of 2015. He predicts that Apple could sell 20 million units in the wearable device's first 12 months, with an average selling price of $520, achieving $10 billion in added revenue over the period.

The analyst expects that the Apple Watch will debut late in Apple's March quarter, giving the company only two to four weeks to ship units. But if Apple can sell 2 million units in the launch window, he sees the Apple Watch adding about $1 billion in revenue for the March quarter.

Thus far, Apple has said little about its upcoming Watch, offering a launch window of "early 2015" and a starting price of $349. Daryanani expects that some versions of the Apple Watch — most notably the fashion-focused 18-karat gold edition — will sell for over $1,000.

Though he is bullish on the Apple Watch, Daryanani said key questions remain about battery life, gross margin, penetration rate among the iPhone user base, and the value of Apple Pay integration. Still, he predicts that gross margins on the device will be at 50 percent, helping to boost Apple's overall margins.

Daryanani admitted that his estimates for the Apple Watch are "conservative," and he believes investors should share his view, as the device requires tethering to an iPhone 5 or later. His 20 million sales figure factors in an estimated 10 percent penetration rate to existing iPhone sales in fiscal 2015, and the number is also about on par with the number of iPads Apple sold in its first year.