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Will iPhone 7 Push Apple Back to Bull Market Territory?

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In a statement issued yesterday, Apple Inc.AAPL said that preorders for iPhone 7 Plus (for all colors) and iPhone 7 (jet black color) have been significantly higher and that the initial supplies are sold out worldwide. The new range of iPhone will be available in stores on Sep 16 at a price of $649. Shares of Apple closed 3.6% higher yesterday at $111.83 and hit a 9-month high.

Even prior to Apple's statement, Wall Street was abuzz with the news of iPhone 7 preorders hitting the roof, given encouraging iPhone 7 sales data from three carrier services in the United States, T-Mobile, Sprint and AT&T.

Per media reports, T-Mobile said that preorders for the latest iPhone have not only shattered all records but are up fourfold compared with iPhone 6 and 6S preorders. Even Sprint gave a more or less similar report, citing a 375% surge in demand for the new phones over iPhone 6. However, reportedly, Verizon, the largest carrier service in the United States, said that preorders were in the normal range.

Will iPhone7 Sales Drive Apple Shares?

Apple released its newest mobile device last week amid much fanfare. For long, analysts expected the launch of iPhone 7 to boost Apple's revenues. The company has witnessed muted demand for its flagship product in the last two quarters given the macroeconomic turmoil. However, during the "turmoil", its share price, despite falling to the $90s, bounced back to $111. Year-to-date, its shares are up 4.2%.

We believe iPhone sales should prove to be a near-term catalyst for the share price. Though iPhone 7 doesn't exactly have ecstatic reviews, Apple stands to benefit from the iPhone 7 upgrade cycle, which should boost its share price further.

There are many factors that could contribute to higher iPhone 7 sales. Though the new phone cannot exactly be called a revolutionary product, it is definitely an "incremental upgrade" from iPhone 6. iPhone 7 looks similar to iPhone 6 but has better features and comes in a new " jet black" color in addition to black, gold and rose gold. Apple's loyal fan base is something we can count on to aid the rescue effort.

Plus, research reports indicate that people generally upgrade to a new mobile device once every two years. The company banks on this trend and rolls out its biggest updates every two years. Therefore, now is a good time for iPhone 6 users to get an upgraded device. However, Apple made a smart move last year, when, along with the launch of iPhone 6s, it initiated an upgrade plan (allowing users the ease to upgrade their existing iPhone every year). This implies that a significant number of iPhone 6s users will also be upgrading their existing handsets. Moreover, the company also provides scope for an early upgrade to those who have been using their existing devices for six months but haven't completed a year yet.

Moreover, analysts observe that Apple's decision to keep the ASP of the unit at the higher end will ensure robust gross margins and maintain its competitive edge in the market. Also, the upcoming holiday season should boost sales.

Further, analysts point out that Samsung's troubles will help the sale of iPhone 7. Samsung and Apple are the two biggest names in the smartphone market. However, the Korean giant recently had to recall 2.5 million Samsung Galaxy Note 7 devices due to defective batteries.

However, there are many who believe that the iPhone 7 cycle might get impacted because of the highly anticipated iPhone 8. Per rumors, Apple is planning to launch iPhone 8 next year on the 10 th anniversary of the first iPhone. The new iPhone, reportedly, will have unbelievable features including a glass body, a dual curved edge-to-edge OLED display with a built-in Touch ID sensor, wireless charging and so on. Analysts feel that many buyers could hold on to their current devices a little longer.

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However, Apple will refrain from reporting first weekend sales figures as it stated that initial sales numbers will be governed by supply and not demand .Therefore, they are turning out to be a not-so-useful metric for both investors and customers.

Currently, Apple carries a Zacks Rank #3 (Hold). Better-ranked stocks in the tech space include Facebook Inc FB ), NetEase, Inc. NTES ) and NetApp, Inc. NTAP ). All these stocks carry a Zacks Rank#1 (Strong Buy).You can get the complete list of today's Zacks #1 Rank stocks here .

Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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