Apple Inc.’s iPhone 7 – coming later this year – is already brewing up a lot of debate, and analysts on Wall Street are not sure whether its demand would be weak, strong or flat. Brexit, consumer health and the rate of the upgrade are factors that analysts are considering as they wait for the next model. Most of this tells us one thing – predicting the sales of iPhones is not as easy as it looks.
Apple iPhone 7 – a lot to talk about
In a recent research report, Citigroup analyst Jim Suva lowered their estimates for the June and September quarters. He considered the potential for lower demand, currency volatility, macro uncertainty (related to Brexit) and lengthening replacement cycles. The average iPhone replacement rate has increased from roughly 24 months in 2013 to 28 months now, points Suva. In addition, the model by Suva suggests the range could rise to as much as three years – not a good news for the Cupertino-based firm.
Meanwhile, Brian White at Drexel Hamilton LLC was a little more optimistic, and called the recent decline in Apple’s stock a good time to buy. But he did note that the older the current model gets, the worse it can be for the stock.
“Although we recognize the weakness that typically occurs in the late stages of an iPhone cycle can be discouraging, and the macro environment remains more of a headwind than a tailwind, we believe Apple’s valuation remains very attractive and the upcoming iPhone 7 ramp will ultimately return the company back to positive year-over-year iPhone unit growth by the second quarter of fiscal year 2017 based on our current model,” White adds.
Wall Street unanimous on one thing
Cowen & Co. analysts were not as optimistic about Apple Inc. in the near-term. They do believe that the stock remains a good long-term investment though. In a recent note, analyst Timothy Arcuri wrote that they still do not see any positive estimate revisions for another few quarters, but a new analysis suggests “we are on the cusp of huge growth in the portion of the iPhone base that is more than 2 years old.” He further wrote that either they are looking at an iPhone 6-like (or even better) super-cycle in calendar year 2017, or the upcoming iPhone 7 is better than what investors think.
As a whole, Wall Street agrees on one thing – some 42 of the 51 analysts covering the stock have a Buy rating on it. Cowen, Citigroup, and Drexel have targets of $125, $115 and $185 respectively. The overall average is $123.13. Currently, Apple Inc. is trading at $96. The average price target would mean a 28% return.
On Thursday, Apple shares closed up 0.43% at $95.94. Year to date, the stock is down almost 11% while in the last one-year, it is down over 24%.