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Apple, Inc. shares are rebounding after the weakness witnessed late last week on reports of weaker iPhone demand.Notwithstanding the rich valuation the shares have built up this year, they are still a buy, according to an analyst at KeyBanc Capital Markets.

The Apple Analyst:Brandon Nispel initiated coverage of Apple shares with an Overweight rating and $191 price target,.

The Apple Thesis:Apple's iPhone sales have not peaked, with a 5G upgrade cycle near-term potentially pushing Apple past its peak, analyst Nispel said in a note. The company isn't overly reliant on the iPhone, as the product breadth has expanded, he added.

The analyst expects Services to grow at rates multiple times faster than user growth, ultimately driving gross margins higher through revenue mix. This, the analyst said, is despite concerns over regulations of Apple and the App Store.

Apple will have 1.09 billion active installed iPhones and 1.8 billion active installed devices at the end of the first quarter of fiscal year 2022, Nispel estimates.

"To us, it's all about AAPL's user base, which is among the largest in the world, where a large and growing user base and new products and services provide a solid foundation for growth," the analyst said in the note.

While the company will likely make a healthy investment in the business, it is likely to allocate of over 100% of free cash flow to shareholders through about $300 billion of dividends and share repurchases over the next three years, providing attractive returns to shareholders, the analyst said.

KeyBanc estimates fiscal year 2022 revenues, gross margin, adjusted EBITDA and FCF of $386.3 billion, 42.5%, $135.9 billion and $106.1 billion, respectively, with all metrics coming in above consensus.

"While AAPL is expensive by historical valuations, we find AAPL attractive relative to other mega-caps given AAPL's superior ROIC characteristics," the firm said.

AAPL trades at 18.5 times the firm's 2023 EBITDA estimates vs. the "Big Tech" peer group average of 15.3 times. Apple's lower growth compared to peers is offset by high ROIC and justifies an above-peer average valuation multiple, the firm said.

AAPL Price Action:Apple shares gained 2.15% Monday, closing at $165.32.