Expectations around the iPhone 13 cycle have taken on a bullish hue recently. Demand for the new model appears to be stronger than anticipated, despite the disruptions wrought by the global supply shortages and the ongoing pandemic.
This has been reflected in Apple (AAPL) stock, which performed sluggishly in the year’s first half but has picked up steam since with the shares reaching new peaks recently.
That said, J.P. Morgan’s Samik Chatterjee believes most of the “revenue and earnings upside realization associated with the iPhone 13 cycle is still to come.”
And this is why Chatterjee thinks that just like before the iPhone 12’s cycle kicked into action, investors will be willing to “again attribute a peak multiple on consensus earnings expectations.”
While any bullish case made for Apple has the shiny new iPhone model front and center, the analyst believes the anticipated impact from a less lauded model has yet to be properly factored into the estimates.
Chatterjee expects further “upgrades to consensus iPhone shipments” due to the early 2022 launch of the budget iPhone SE model, which will also for the first time boast 5G capabilities. Chatterjee thinks “the focus on the iPhone 13 demand and supply situation is driving investors to underappreciate the relevance of the 5G iPhone SE to the FY22 product cycle.”
The 5-star analyst believes the SE model targets an “underserved market.” Apart from the estimated 300 million iPhone owners in need of an upgrade, there is also the prospect of some of the ~1.4 billion owners of low-to mid-end Android phones switching sides. In fact, despite making up 75% of global smartphones, the low- to mid-end devices cohort (those which cost less than $400) account for only 50% of 5G devices to date. Additionally, owners of 5G devices with smaller sized screens (those under 5”) also remain an unaddressed “niche segment.”
Therefore, Chatterjee expects the combination of “resilient” iPhone 13 demand, coupled with the 5G SE to send the FY22 iPhone product cycle to a “new record level.”
With all this as backdrop, Chatterjee believes a new price target is merited – and a Street-high one at that. The figure moves from $180 to $210, suggesting room for 18% returns by the end of 2022. No need to add, Chatterjee’s rating stays an Overweight (i.e., Buy). (To watch Chatterjee’s track record, click here)
Most analysts agree that AAPL stock is a Buy. Out of the 28 reviews on record, 22 are positive, 5 stay on the fence and one implores to Sell, all coalescing to a Strong Buy consensus rating. (See Apple stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.