Apple (AAPL - Get Report) shares were set to rise on Tuesday after the company's price target was raised to $225 from $215 by analysts at Wedbush, who also maintained their outperform rating on the stock.
While the firm acknowledged that the tech giant made mistakes in its December quarter as iPhone deliveries in China came in softer than expected, for the current cycle the firm believes that about a fifth of the iPhones set to be upgraded worldwide this year will be purchased in China.
"With 900 million active iPhones worldwide and 350 million of those in a window of an upgrade opportunity over the next 12 to 18 months based on our analysis, we estimate between 60 million to 70 million of iPhones slated to be upgraded/new purchases are out of the key China region. This number speaks to how critical China is for Cook & Co. going forward and why we expect more significant price cuts on XR over the coming months," analyst Daniel Ives said.
The firm noted that the company's next batch of iPhones, which are expected to debut in September, will be an attempt to "catalyze" the upgrade cycle worldwide, but especially in China, with many customers approaching 33 months since their last iPhone upgrade.
"In sum, we concede that there is clearly an Everest-like climb ahead for Apple to turnaround its China doldrums in the near-term, although Cupertino still has a clear window of opportunity to change the tide with the right pricing strategy and trifecta of iPhones slated to hit the market in September 2019," Ives said.
Hardware is expected to be a net positive, but Wedbush is also bullish on the company's services segment. The firm said it believes the business is worth about $400 billion, which makes Apple's current valuation "compelling on a risk/reward basis."
Apple shares rose 0.4% to $200.93 in trading.
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