KeyBanc Capital Markets says Apple will report better-than-expected revenues next year

KeyBanc Capital Markets has raised its rating for Apple shares to “overweight” from “sector weight,” predicting the company will report better-than-expected earnings next year, reports CNBC.

"Apple's introduction of iPhone X at a $999 entry price, its increase to iPhone 8/8+ prices, and its change to storage step-up pricing collectively represent a more aggressive strategy to segment its customer base and extract incremental gross profit from its users than we previously expected," the firm's analyst, Andy Hargreves, said in a note to clients.

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Apple shares rose 0.9% in Monday's premarket session after the report. Hargreaves initiated a $187 price target for Apple shares, representing 19% upside to Friday's close.

"Apple's most inelastic customers are likely to be the ones who look to purchase the iPhone X first," he wrote. "Assuming supply of iPhone X improves, this should create a favorable initial mix of iPhone X units that is likely to be favorable to investor sentiment over at least the next few quarters."

The analyst predicts Apple's fiscal 2018 iPhone average selling price and gross profit margin will be $760 and 39.5% versus the Wall Street consensus forecasts of $725 and 38.6%, respectively. As a result, Hargreaves raised his estimate for the company's fiscal 2018 earnings per share to $11.68 from $11.07 compared with the $11.03 Street average.