How To Time The iPhone Release Cycle

Monica Gerson , Benzinga Staff Writer

October 12, 2016 7:37am Comments

While commenting on how to anticipate iPhone product cycles, UBS analyst Steven Milunovich said in a report that Apple Inc. (NASDAQ: AAPL) should narrow the discount at which it is currently trading as investors “perceive life beyond F18.”

The analyst maintained a Buy rating on the company, with a price target of $127.

Historically, Apple’s stock tends to appreciate when next 12-month financials exceed the consensus revenue and EPS expectations and decline when expectations are missed.

“Rarely does the stock make a material move unless beats have begun, though the stock did react early to the powerful iPhone 6 cycle,” Milunovich noted.

Downward movements are less pronounced than upward movements and downside often lags negative data points by two to four months. This may reflect a positive investor bias toward Apple. Milunovich further observed that the stock is more correlated with next 12-month results than with next 6-month results.

iPhone 8 Cycle

The analyst expects the iPhone 8 cycle to be reflected in Apple’s stock as early as January or February 2017. With the iPhone unit growth estimate at 8 percent, in-line with current consensus forecasts, the stock is unlikely to make a dramatic move in the near term.

Milunovich added, however, that iPhone unit growth in FY 2018 could be 16 percent, beating the current consensus expectations. Considering the 12-month lead, the stock may begin discounting the iPhone 8 cycle early next year.

“March will be interesting as a true reflection of demand and gross margin; even if it is weak, the stock might hold up if the iPhone 8 surprises to the upside,” the analyst commented.

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