Wall Street forecasts for Apple stock are climbing, with another report claiming that the stock will hit $155 over the summer of 2017 on pre-release hype of the "iPhone 8" and continued expansion of the Services division that includes the App Store, Apple Music, and AppleCare.
"Don't sell yet. Wait at least until the end of summer -- apple-harvesting season in our home state of New York -- when buzz for the coming 10-year anniversary iPhone is likely to hit a peak," writes Barrons from a report on Saturday. "Apple shares could return another 10% by then."
Leading up to the summer, Barrons claims that the company is undervalued, trading at only 12 times earnings, and a 35 percent discount to the broad market. The company's stock price is estimated to be worth 17 times earnings. similarly to Google's and Microsoft's worth.
Apple's Services business are the "key to smoothing out Apple's earnings swings" because of iPhone seasonality, and the report claims that Services alone will double it's current $25.5 billion earned over the last year, and approach $50 billion by 2020.
The Barrons report reiterates what other analysts have already stated, suggesting that a "super cycle" of iPhone upgraders will benefit Apple at least this year. In conjunction with the expanding iPhone user base, Apple's Services division will grow proportionately, with an 18 percent annual growth needed to hit the $50 billion per year prediction.
Revenues from the division are expected to remain high, as most of the gross margins exceed that of the hardware that utilizes the services. The App Store is estimated to be 85 percent gross margin, with Apple Pay delivering 80 percent, iCloud margin hitting 75 percent, and AppleCare and service parts around 70 percent.
Apple Music and iTunes maintain a low gross margin at about 15%. While iTunes revenue is decreasing, iTunes memberships are on the upswing, in conjunction with greater adoption by the public of leasing music, rather than owning a large collection.
During the July 2016 Apple quarterly earnings conference call, CEO Tim Cook said that Apple's Services business is expected to be the size of a Fortune 100 company at some point in 2017. In January 2017, Services earned Apple $7.17 billion, 13 percent higher than the previous quarter, with the division posting the largest gain on a percentage basis of all of Apple's business segments.
The rumored "iPhone 8" is believed to be arriving later this year as part of the ten-year anniversary for the mobile device. Unlike the application's reliance on a camera, rumors suggest the "iPhone 8" could include a 3D laser scanning module, which could be used for advanced facial recognition on the high-specification smartphone. The OLED "iPhone 8" is also rumored to boast a glass-sandwich design, with a FaceTime camera, fingerprint sensor, and home button embedded under the glass.