Apple stock rises after a big endorsement

Gaming is a key contributor to Apple’s services business.

J.P. Morgan analyst sets second-highest price target on the Street, thinks services, iPhone average price could surprise

Apple Inc. shares headed higher in Thursday’s session after the stock received one of its most bullish endorsements from Wall Street.

J.P. Morgan analyst Samik Chatterjee initiated coverage of Apple’s stock AAPL, -0.28% with an outperform rating and a $272 price target, representing a 21% premium over the current price. That target is the second highest listed on FactSet.

Chatterjee thinks Apple is about to positively surprise investors on a few fronts, including by growing its services business more quickly than expected and continuing to benefit from increases in the average selling price for an iPhone.

In terms of services, Chatterjee projects that Apple Music will be a $30 billion business come 2025, and he thinks that Apple Pay, an oft-forgotten element of Apple’s services story, will become a “key component” of the segment. He sees Apple Pay as well positioned to capitalize on rising penetration of mobile payment options throughout the world. Apple Pay could contribute $6 billion to revenue in fiscal 2025, Chatterjee wrote.

He expects the company to do bolt-on acquisitions to bolster its services offerings, but he also raised the possibility of more “transformational” deals, including in gaming, driving, and smart speakers.

Chatterjee is also upbeat about the core business. Over the past few quarters, Apple has beaten revenue expectations even while falling short of Wall Street’s estimates for unit growth. The key has been higher than expected iPhone ASPs, and he thinks the company will continue to have success at very high price points.

“We believe the pricing strategy is sustainable and expect limited price elasticity from consumers,” he wrote, noting the stickiness of the Apple ecosystem and his belief that many iPhone users are putting off laptop or tablet purchases because they do so much on their phones.

Of the 41 analysts tracked by FactSet who cover Apple, 26 have buy ratings, 14 have hold ratings, and one has a sell rating. The average price target is $232.13, or 3.2% above current levels.

Apple shares are up 2.1% in afternoon trading Thursday, and they’re up 46% over the past 12 months. The Dow Jones Industrial Average DJIA, +0.21% of which Apple is a component, has gained 18%.

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