Apple Slapped With Buy At Sterne Agee CRT; Firm Likes 'Uniquely Premium Model'

• Shares of Apple Inc. (NASDAQ: AAPL) are 2.4 percent higher year-to-date, outperforming both the S&P 500 and the Nasdaq indices.
• Sterne Agee CRT analyst Rob Cihra initiated Apple with a Buy rating and a $150 price target, 32 percent above current price.
• Cihra suggested that Apple's premium economic model is unique, allowing it to "earn more off its high-end demographic than the rest of its competitors combined."

Though Apple has tough iPhone 6S comps this fall, Sterne Agee CRT's Rob Cihra said that the "upgrade momentum stays positive." In FY15, iPhone sales will account for between 66 and 72 percent of Apple's revenue and gross profit. Starting with the December quarter, Cihra forecasted that year-over-year comps will begin to slow, with just 3 percent growth compared with 36 percent growth a year ago. Into next year, Cihra said that iPhone sales could still grow at a modest 5 percent pace, even off of high sales.

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Cihra also suggested that Apple has a recurring revenue model, "whether it looks like one or not." This is because much of the current demand for Apple products comes from within the current user base. With the iPhone upgrade program, Cihra speculated that it opens the opportunity for an Apple ecosystem subscription.

He asked, "Why not ultimately charge an annual fee of $1,000 or whatever the number for an Apple user to have the latest version of iPhone+iPad+Mac, effectively ‘subscribing' to the Apple ecosystem, which is what they're effectively doing already?"

Finally, on China, Cihra called Apple an "aspirational brand," noting that the company will benefit from a larger base of smartphones within the country. Cihra called out Apple bears for their prior analysis on China, which centered around whether the economy could support the high-priced items. Apple's growth rate suggests that it can. Therefore, Apple's "strong presence" in the country is a long-term positive.

On the risks front, Cihra said that the company is overly reliant on "just a handful" of key products, which could open itself up to pricing and margin pressure into the future.