Does the iPhone 7 have the potential to lift Apple Inc. (NASDAQ:AAPL) stock out of the range it has been stuck in for some time? This is one of the big questions investors are faced with as we enter the final couple of weeks before the company’s next earnings release.

Goldman expects a “modest” beat from Apple (AAPL)

In a report dated July 13, Goldman Sachs analyst Simona Jankowski and team said they expect Apple Inc. (NASDAQ:AAPL) to modestly exceed expectations for the June quarter. They believe demand for the 4-inch iPhone SE ended up being better than expected and that this will drive the earnings beat. They’re expecting $42.6 billion in revenues for the June quarter, compared to the consensus of $42.2 billion and management’s guide of $41 billion to $43 billion. They’re looking for earnings of $1.43 per share, against Wall Street’s estimate of $1.40 per share. They project 40.7 million iPhone units, compared to the consensus of 39.9 million, and an overall gross margin of 38.1%, compared to the Street’s estimate of 37.8% and management’s guide of 37.5% to 38%.

The Goldman team expects Apple Inc. (NASDAQ:AAPL) to guide for between $45 billion and $47 billion for the September quarter, which would be an 11% increase year over year at the midpoint. They continue to see the iPhone SE as a key driver in the “modest” improvement and are estimating an average selling price of $620 for the iPhone in the June quarter, representing a 6% year over year decline and 3.4% sequential decline. Despite the iPhone SE’s pressure on Apple’s overall gross margin, Jankowski and team believe the gross margin on Apple’s Services was at 66%  in the June quarter, thus offsetting the impact from the better-than-expected performance of the less expensive iPhone.

Apple stock AAPL chart

Will the iPhone 7 help AAPL stock break out of its range?

The Goldman team doesn’t believe the June quarter earnings report will be much of a catalyst for Apple Inc. (NASDAQ:AAPL) stock because investors are so laser-focused on the iPhone 7, which is expected to be launched in September. It’s generally believed that the iPhone 7 will only be a small incremental upgrade, and as a result, some analysts do not expect it to do well. However, the Goldman Sachs team believes it will sell better than most expect because their recent survey suggests “significant pent-up demand” in the U.S.

Going into the iPhone 7 launch, they estimate that the installed base sits at about 550 million, representing a 39% year over year increase and more than 75% increase from two years ago at the time of the iPhone 6 launch.

Apple Inc. AAPL stock chart iphone 7

They believe this creates a setup for momentum to improve going into the December quarter and into next year when they expect a return to growth for the iPhone thanks to the iPhone 7. They also believe that more than 30% of the installed base still has an iPhone 5s or older, which means there could be pent-up demand. Additionally, their latest survey indicated that 16% of participants are planning to purchase an iPhone in the next three months.

Apple Inc. (NASDAQ:AAPL) shares edged lower 0.16% to $97.26 in afternoon trading on Wednesday.