Apple Now A Strong Buy, New IPhones & IPad Key Catalysts

On Oct 3, 2014, Zacks Investment Research upgraded Apple Inc. (AAPL) to a Zacks Rank #1 (Strong Buy). Positive estimate revisions due to robust new iPhone sales and the upcoming iPad refresh primarily drove the upgrade.

Why the Upgrade?

Apple unveiled two new iPhones during an event on Sep 9, 2014 and started taking pre-orders from Sep 12. The company announced that four million orders were placed in the first 24 hours for the two iPhones.

Further, Apple set a new record after it sold more than 10 million units of the new iPhone 6 and 6 plus handsets in the very first weekend. Last year, Apple sold 9 million units of iPhone 5S & 5C, which beat all previous records.

Consumer demand for iPhone 6 plus was more than iPhone 6, primarily due to the bigger screen. iPhone 6 has a screen size of 4.7” while iPhone 6 plus boasts a phablet-like screen size of 5.5''. The bigger screen brings iPhone on par with many phablets available in the market from the likes of Samsung, HTC and LG, which improves Apple’s competitive position.

Despite the bending problem of iPhone 6 Plus and iOS 8 related issues, it is estimated that Apple may have already sold more than 20 million iPhones. Moreover, the new iPhones will be available in China, which happens to be Apple’s fastest growing market, from Oct 17. We believe that the company will benefit from pent-up demand.

Reportedly, Apple has scheduled an event on Oct 16. It is expected to launch new iPad at the event. The refresh is expected to drive iPad’s sales in the upcoming holiday season. According to Consumer Electronics Association (CEA), tablets are one of the most popular electronic gift items for the upcoming holiday season, with 26% of shoppers expected to buy one.

CEA expects headphones and earbuds to be the most popular, with 27% and 26% shoppers respectively buying these. In this regard, Apple’s acquisition of Beats Electronics also places it well in the high-end headphone market, in our view.

Estimate Revision

The Zacks Consensus Estimate for fiscal 2014 increased a penny to $6.32 per share over the last 30 days. This represents year-over-year growth of 11.3%. For fiscal 2015, the Zacks Consensus Estimate jumped 19 cents (2.7%) to $7.12 per share over the same time frame.

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John Fitch 6 years ago Member's comment

Perhaps I am in the minority but I feel as if Tim Cook will be the demise of Apple. Apple definitely has a large following, but without Jobs where will they find their innovation? I hold the opinion that their technology is already lagging.