Raymond James On Apple Neutral Stance: iPhone 5SE Cannibalization, iPhone 7 Optimism In Focus

Raymond James’ Tavis C. McCourt believes that although the worst year on year declines appear to be behind Apple Inc. AAPL now, year on year growth is still likely to be a few quarters away.

McCourt maintained a Market Perform rating on the company.

Consensus vs Estimates

The analyst mentioned that the consensus expectations for the iPhone 6S cycle had been “far too optimistic,” although the gap between the estimates and the consensus EPS expectations for FY16 have narrowed with the setting in of the realization of the 6S cycle.

The March and June quarter EPS estimates are fairly close to the consensus forecasts, and McCourt believes that only few surprises are likely related to the guidance and results.

However, the consensus iPhone unit expectations could prove too conservative.

iPhone 5SE

McCourt also expects the iPhone 5SE to be “reasonably successful,” although ASPs are likely to be lower due to promotions and mix.

“Probably the single biggest risk to June results is whether 5SE demand is incremental or simply cannibalizes more margin-rich iPhones,” the analyst said.

iPhone 7

Although there appears to be some uncertainty regarding the iPhone 7 cycle, McCourt expects the 7S to be a more meaningful upgrade than the 7, since the latter “is unlikely to have any meaningful hardware change beyond waterproofing.”

In fact, the analyst believes that the iPhone 7S or 8 would have bigger changes, which in combination with the iPhone 6 hangover having finally run its course, could drive improved trends year on year.

McCourt also expects Apple to return to year on year growth in March 2017, which would drive stock valuation as the year progresses.