Apple's (AAPL) OLED Innovation Spurs Upgrade at Cowen

(Updated - March 30, 2016 7:48 AM EDT)

With OLED potentially on all new flagship Apple (Nasdaq: AAPL) iPhones in 2017, there is potential for "dreamy" form factors, said Cowen analyst Timothy Arcur. He upgraded his rating on Apple from Market Perform to Outperform with a price target of $135.00 (prior $125.00).

Arcur also noted that Apple still trades at a 25%-30% discount to large-cap tech peers and the S&P 500 -- below the 5-year average. Given this, downside appears limited "while green shoots of innovation around OLED could drive a better multiple and create a clear path to $135 or even higher."

The analyst also thinks year-over-year compares and forward estimates have bottomed.

Arcur explained, "While no mystery that the OLED supply chain is gearing up for AAPL, Street still sees broad adoption in '18. We now believe AAPL could adopt OLED in '17 for all new flagship iPhone, not just high-end "niche" model. This potentially equates to ~80-100MM+ units w/some flexible rigid design likely, migrating to full flexible in '18. While skeptics may see OLED (sourced from Samsung in near/medium-term) as another copycat feature from Samsung, flex OLED gives AAPL a key new degree of freedom on product design, while '17 adoption provides a 'bridge' to a new cycle of innovation that should accelerate in '18 and beyond."

Discussing year-over-year compares, the analyst said, "While we see CQ1 revenue biased toward the low-end of $50-53B revenue guidance given ongoing 6S softness, it is hard to see revenue below the low end with FX modeling also suggesting ~100-150bps better than assumed in AAPL guide. On CQ2, field work indicates it has gotten, if anything, better owing to a few MM SE units overlayed on a generally stable supply chain. Given this backdrop, Street estimates finally look safe while Y/Y compares on iPhone units and overall AAPL revenue are bottoming in CQ1 and should turn flat to up as soon as CQ4:16 additionally fueled by less severe FX headwinds."

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $107.68 yesterday.

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