Apple Inc. (NASDAQ:AAPL) shares have been upgraded to Buy by the first analysts to downgrade the stock. In a report issued to investors this morning, BTIG analyst Walter Piecyk said they have upgraded the Apple Inc. (NASDAQ:AAPL) stock from its previous Neutral status and set their price target at $540 per share.


He downgraded the Apple Inc. (NASDAQ:AAPL) stock almost a year ago, long before Apple Inc. (NASDAQ:AAPL) shares hit their all-time high of $705 per share in September. Analysts then began downgrading the stock as shares plummeted from that record high.

Piecyk believes Apple Inc. (NASDAQ:AAPL) earnings per share will be flat this year, or possibly even down, but then he expects them to grow next year. According to his report, Apple Inc. (NASDAQ:AAPL) has four major things going for it: a low-cost iPhone, better carrier upgrade policies, some kind of new product release and a final decision on what to do with the company’s cash hoard.

What’s especially interesting about Piecyk’s upgrade of Apple Inc. (NASDAQ:AAPL) is his allowance for the possibility that the company will miss expectations for the current quarter. He said it’s even possible that the tech giant will miss its own guidance. That could send the stock into an even further nosedive—possibly below $400 per share.

He even lowered his fiscal 2013 revenue estimate by $6 billion to $174 billion due to lowered expectations for iPhone and iPad sales. In addition, he lowered his fiscal 2013 earnings per share estimate by $2 to $41 per share, which implies the expectation of a 7 percent year over year decline. His new earnings per share estimate are $3 lower than consensus.

But he’s focused on the long term. One of the main reasons he downgraded shares of Apple Inc. (NASDAQ:AAPL) last year was because carriers were making it more difficult to upgrade to newer models of the iPhone. As he predicted, that pushed sales of iPhones lower. However he said now carriers are beginning to change their policies again, which should push iPhone sales higher as it becomes easier for users to upgrade.

Like most other analysts, he also believes that a low cost iPhone is needed because it would enable Apple Inc. (NASDAQ:AAPL) to address the unsubsidized prepaid market, which is about 70 percent of wireless subscribers globally. However, he has gone a step further in his expectations for a new product. Of course there have been speculations about an iTV or an iWatch, but while Piecyk doesn’t name a particular product, he believes it will bring in $5 billion in revenue within the next 12 months—even though he admits that there’s a certain amount of “absurdity” for both bulls and bears in that expectation.

In addition, he expects Apple Inc. (NASDAQ:AAPL) to offer a dividend or increase its stock buybacks, probably within the next two weeks.