Pacific Crest Securities analyst Andy Hargreaves boosted Apple, raising it to "outperform" with a $635 price target, as he believes the next iPhone, which he calls the iPhone 6, could be priced higher than the iPhone 5s, and return growth to Apple in fiscal 2015.
"We believe Apple can sell a 4.7" iPhone at a subsidized price of $299, which should generate incremental gross profit on replacement sales and attract new customers that had previously purchased Android phones specifically for a larger screen," Hargreaves wrote in a note.
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Apple shares were higher following the upgrade, gaining 0.49% to $533.50 in premarket trading on Tuesday.
Hargreaves said he believes that more than 100 million Android phones were shipped in 2013 with screen sizes larger than 4 inches. With Apple's overall market share being 15%, according to research firm IDC, Hargreaves thinks it's "reasonable to assume that a 4.7" iPhone could capture 10% of the market for smartphones above 4', which suggests an opportunity for Apple to drive an incremental 10 million units of share from Android following the launch of a larger iPhone."
It's thought that Apple will unveil the next iPhone around September or October, which it has done for the past few years, starting with the release of the iPhone 4S.
"We expect iPhone replacement rates to remain stable for the foreseeable future, which should underpin strong cash flow to fuel Apple's cash return activity and a still growing net cash balance," Hargreaves wrote in the report.