Top Analyst Warns iPhone Sales Expectations Are 'Unrealistically High'

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  • The share price of Apple, Inc. AAPL has declined 9.29 percent over the past six months.
  • Pacific Crest’s Andy Hargreaves has maintained a Sector Weight rating on the company.
  • With iPhone 6s demand seeming less “strong” than the demand for iPhone 6 had been, Hargreaves believes that the near term iPhone sales expectations are “unrealistically high.”

The high sales expectations are likely to be a risk to the stock over the next few months, with data points suggesting that the demand for the iPhone 6s could be meaningfully lower than that seen by the iPhone 6, when it was launched.

Also, according to the Pacific Crest report, “Third-party survey data suggested that the iPhone 6 upgrade rate was significantly higher than the 5s upgrade rate, and now seems to suggest the iPhone 6s upgrade rate will normalize to a level well below what we saw in the 6 cycle.”

Hargreaves believes that this could impact unit volumes, which are expected to decline during the early iPhone 6s cycle. Also, while there is positive sentiment around the iPhone Upgrade program, the program is unlikely to drive the change that many investors expect.

Pacific Crest’s scenario analysis indicates that the “potential benefits are likely to be muted by likely financing costs, deflation in used iPhone pricing from increasing supply, and cannibalization of people that already bought phones every year or already purchased AppleCare.”

Although the stock remains attractive over the longer term, Hargreaves believes that expecting growth in iPhones in 1HF2016 could prove unrealistic.

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Posted In: Analyst ColorReiterationAnalyst RatingsPacific Crest Securities
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