Citi Remains Bullish On Apple, Cites Product Demand And Increasing Margins

Citi on Wednesday issued a report on Apple Inc. (NASDAQ: AAPL) highlighting the continued strong demand for the iPhone 6 product line. Citi rates Apple as a Buy with a $145 price target.

Analysts Jim Suva and Asiya Merchant wrote, "Our global due diligence assessing both demand and supply reveals consensus is underestimating both the continued demand for iPhone 6 and iPhone 6 Plus as well as the demand for the higher memory density phones. Even after the iPhone 6 launch which occurred 6 months ago, many locations are still selling out daily of the more popular 128GB memory configurations with some carriers having shipping times longer than at launch.

"We expect Apple to announce an increase in its share buyback program from $90 to $120 billion...as well as a 10 percent dividend increase."

Related Link: Dennis Gartman: We Own A Bit Of Apple

The analysts discussed four reasons why Apple shares can trade higher:

• 1. Device Acceleration: Wireless carrier behavior has been changing to allow consumers to upgrade their cell phones before the expiration of standard contracts. This makes it easier for consumers to upgrade their iPhone to the newest iPhone rather than waiting two years for an upgrade.
• 2. Valuation: Apple trades at 14x forward earnings, while the S&P 500 is trading at 17x forward earnings.
• 3. Higher Gross Margins: Increased usage of apps coupled with higher quality of camera resolution for photos and video may cause consumers to permanently shift their preference to higher memory in their smartphone despite the higher costs. The iPhones with greater memory have higher margins.
• 4. Apple Pay Plus Passbook: Citi wrote of 15 potential uses for Apple Pay including, mobile wallets, healthcare identification and payment processing.

Shares of Apple recently traded at 124.11, down 0.36 percent.