Hargreaves: Apple Set For Lower Trough In iPhone 6s Cycle, But 7 Set For Growth

• The share price of Apple Inc. (NASDAQ: AAPL) has declined 23.26 percent over the past six months, dropping to a low of $96.45 on January 7.
• Andy Hargreaves of Pacific Crest has maintained an Overweight rating on the company, while lowering the price target from $142 to $132.
• While expecting a lower trough during the iPhone 6s cycle, Hargreaves mentioned that the risk/reward and growth was expected during the iPhone 7 cycle, which would drive the stock up through 2016.

Analyst Andy Hargreaves mentioned that Apple was likely to launch a new low-end phone either during late FQ2 or during FQ3. Although this would give a modest boost to the low-end volume, Hargreaves did not expect it to have a significant impact on Apple’s overall profit production in FY2016 and FY2017.

According to the Pacific Crest report, “Growth in the iPhone user base should drive replacement iPhone sales up by 40 million units in F2017 versus F2016.”

This is expected to drive total iPhone unit growth in the double digits in F2017, “even allowing for a significant decline in sales to new users due to saturation.”

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Justification

Hargreaves views the risk/reward on the stock as attractive, while mentioning that the current stock valuation undervalues the loyalty of the company’s customers and the “extraordinary utility” of the iPhone.

“While a catalyst may take time, we view AAPL as attractive at current levels and anticipate stock appreciation through 2016,” Hargreaves added.

The FQ1 and FY2016 iPhone unit estimates have been lowered from 76 million to 73 million and from 236 million to 213 million, respectively, based on supply and demand checks.

The FY2016 and FY2017 EPS estimates have also been reduced from $9.50 to $8.63 and from $10.30 to $9.92, respectively.

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