Pac Crest: Apple's iPhone Growth Could Shrink, But It Won't Hurt Investors

Pacific Crest's Andy Hargreaves said in a new research note that Apple Inc. AAPL will see iPhone sales decline in 2016 – but that it's not a bad thing. Specifically, Hargreaves said that it will not impact Apple's free cash flow or customer loyalty. Instead, the issue is one that is "transitory."

More generally, the note predicted, "The smartphone is likely to remain the most important device in the world and iPhone dominates the high end of the category." That means that there will be "extraordinary business value for several years," Hargreaves added.

The largest unknown for Hargreaves is whether Chinese demand for iPhones will hold up. The note pointed out that China drove nearly 65 percent of Apple's operating profit in the last two quarters – a level that seems unlikely to sustain. However, "we lack strong evidence to support a view of deceleration." Data also does not exist to help Pac Crest forecast the size of the used installed base or the "propensity to upgrade new devices." Those will be key moving forward.

On a risk / reward basis, Hargreaves forecasted that a bearish scenario would have fair value at $110 – a roughly 5 percent decline from Friday's close at $115.96. To the upside, Pacific Crest said that prices should rise 20 percent to $139 within 12 months.

This year, Apple shares have traded to a high of above $130 (52-week high of $134.54) on multiple occasions before coming off those levels. Last week, shares traded down to $110 on Wednesday morning before rallying through the rest of the week.