FBR's Dan Ives Still Loves Apple On Edge Of iPhone 6 Launch

• Shares of Apple Inc. AAPL have gained 9.47 percent since August 25, while rising almost 12 percent over the past year.
• FBR’s Daniel H. Ives maintained an Outperform rating on Apple.
• The company has officially sent out invitations for its Apple Launch Event, scheduled for September 9 in San Francisco.

Ives expects Apple to make a number of announcements and product launches at the event, including a 12.9 inch iPad Pro, the next gen Apple TV and the new iPhone 6s/6s+. Investors are expected to be specifically focused on the improvements in the iPhone 6s that could drive upgrades.

“We view this as a critical event for Apple to help turn the negative investor tide and help lay out its growth vision for the next year on the heels of the iPhone 6 super-cycle product tailwinds,” Ives stated.

Ives also expressed a positive sentiment on the stock, mentioning that less than 30 percent of Apple’s customers have been upgrading to the iPhone 6 till date. There is also reason for optimism given that the launch of the iPhone 6s would lead to a major product cycle, China accounting for a $100 billion market opportunity over the coming three years and Apple’s current stock valuation.

Related Link: Is Apple's September 9 Event Teasing A Major Siri Announcement?

Although the Street consensus on the gross margin expansion opportunity afforded by the launch of the 6s has been muted, the FBR report noted that “persistent commodity components tailwinds and the potential use of cross-product materials” could limit gross margin compression.

On the other hand, Ives expects iPhone comps to become increasingly tough over the next few quarters, especially in the December quarter. Although iPhone 6/6 Plus revenues have increased over the past year, the company still has the opportunity to take share across several geographies given that only about 27 percent of iPhone users have upgraded to the 6/6 Plus so far.

The release of the iPhone 6s/6s+ is expected to help Apple achieve 71 percent penetration by the end of 2016.

Ives also believes that the Street is underestimating the company’s top-line growth for FY2016, given the iPhone product tailwinds, as well as “the ramping of the higher-margin services business coupled with healthy share repurchase activity, and as new/existing customers embrace the benefits of the technology stalwart's massive ecosystem.”