iPhone 6 Upgrade Cycle Can Still Boost Apple, Says Canaccord

• Apple Inc. AAPL shares are down 2 percent in the last three months, even after hitting a high of $122.97 on November 3.
• Canaccord Genuity’s Michael Walkley maintained a Buy rating on the company, with a price target of $160.
• The iPhone’s growing installed user base positions Apple for solid sales and cash flows in the long term, Walkley commented.

In 3Q15, Apple was the worldwide leader in the premium-tier smartphone market. The company had an all-time high share of industry profits and a strong share of the premium-tier smartphone market. Analyst Michael Walkley expects the iPhone 6/6S products to continue to have strong sales and capture share in the high-end smartphone market.

Merely 31 percent of the iPhone installed base had upgraded to the iPhone 6/6 Plus devices by 4Q15. This implies strong replacement sales would continue through 2016 and beyond, Walkley said.

He added that Apple is likely to continue to gain share in the high-end smartphone market for the larger screen iPhone 6/6S devices, with surveys indicating an increasing number of Android smartphone consumers switching to the iPhone. In fact, Samsung seems to be the only company among the Android smartphone OEMs that continues to be profitable.

“We believe these trends should grow the iPhone installed base to over 500M exiting C2015, and this base should drive strong future iPhone replacement sales, earnings, as well as cash flow generation to fund strong long-term capital returns programs,” the Canaccord Genuity report stated.

Walkley added that iPhone sales at these levels could fund solid long-term capital returns programs and Apple would be in a position to further monetize the large iPhone user base through additional products, software, and services, which in turn would drive long-term sales and earnings growth.