JPMORGAN: Wall Street is underestimating the next iPhone 'super cycle' (AAPL)
JPMorgan
Apple's stock price is up 21% so far this year.
Now, JPMorgan analyst Rod Hall says there is more room to run. The bank added the tech giant to its Analyst Focus List and raised its price target to $165 from $142.
JPMorgan thinks that massive pent up replacement demand and the anticipation of a groundbreaking new iPhone, is a recipe for success.
Hall believes that the 10th anniversary of the iPhone will bring major changes:
“iPhone Pro” is likely to have 3D facial recognition, glass front/back, a structured-light-augmented main camera, a larger screen in a smaller feeling form factor than prior 5.5" models, wireless charging, and a price tag of ~$1,000. We also believe the new 4.7" and 5.5" LCD SKUs are likely to have the all-glass form factor and wireless charging as well.
Going into this replacement cycle, the average iPhone will be older than at anytime in the past four years. Hall believes consumers are ready for an upgrade, but that the last two iPhone models have not impressed consumers enough for them to replace their phones. This time is different, Hall says:
Even though an iPhone “Super cycle” has been much discussed, we believe that Street numbers still fail to capture the size of the likely replacement cycle assuming Apple delivers a compelling product this year. Our own estimates reflect not only higher unit volumes but a materially higher ASP (average selling price) for the iPhone assuming the new OLED-based (Organic Light Emitting Diodes) iPhone Pro will price at an average of $1,000.
Hall thinks that the $1,000 price point may be right on the money for the "iPhone Pro" because it is not high enough to prevent consumers from upgrading. Yet, it is still high enough to spread the replacement cycle over two years because the price tag represents a substantial investment for consumers.
According to Hall, this will allow Apple to beat earnings estimates well into 2018.
JPMorgan's valuation of Apple is based on a P/E of 11.5x on new 2018 EPS estimates of $11.74. The bank says that may be a conservative estimate when you consider that Apple currently trades at 10.8x and may deserve a multiple expansion if this iPhone is a hit.
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