Apple Inc. (AAPL) - Get Report has offset analyst concerns over iPhone unit volume with a "more aggressive market segmentation strategy that seems likely to increase gross profit per user and drive gross margin higher," KeyBanc analysts said in a note.

"The potential for Apple to exercise greater pricing power, along with further App Store growth, supports the view of the Company as a franchise with subscription-like qualities rather than a regular hardware business," analysts noted.

KeyBanc upgraded Apple stock to "overweight," citing the tech firm's positioning for an increase in earnings outcomes and sustained trading multiples. Analysts had previously downgraded Apple stock in June on concerns over the iPhone's stagnation and remain "somewhat pessimistic around multicycle iPhone unit growth."

However, Apple's renewed drive for market dominance drove analysts to increase their earnings estimates for fiscal 2018 to $11.68 from $11.07 on stronger gross margin expectations.

KeyBanc placed a $187 price target on Apple shares, representing a 19% upside from Apple's closing price last week. Apple stock was higher 0.85% to $158.33 in premarket trading Monday, Oct. 16.

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