The big iPhone 7 event is set for Wednesday afternoon, and so far, it looks like Apple Inc. (NASDAQ:AAPL) stock is behaving according to history. Of course this year expectations are set lower than they have been going into past iPhone events, which could serve to exaggerate the post-event stock movements.
AAPL stock usually looks weak going into iPhone events
In a report dated September 6, UBS analyst Steven Milunovich said he had traced the movements of Apple (AAPL) stock around major product launches. He noted that the iPhone maker’s shares are down a little from where they were a couple of weeks ago. This follows the historic pattern in which the stock has been weak going into past iPhone launches.
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If the stock continues to follow the pattern, it means that it will become strong immediately after the event until the iPhone 7 actually becomes available. According to Milunovich, Apple (AAPL) stock gained 4%, on average, for the iPhone 5, 6, and 6s between the event and launch. Over the last four iPhone cycles, the shares declined by an average of 4% two weeks after the new models became available for purchase.
The analyst adds that over the last three iPhone cycles, the stock was strong in the two weeks before earnings, gaining an average of 2% before falling back to the levels where it was before the product announcements. Apple’s (AAPL) stock movement following the iPhone 5 and 6 announcements indicated a long-term trend due to investors’ expectations being reset, he explained. He added that the iPhone 6s was the only cycle in which the stock movement after earnings didn’t follow the longer trend because even Apple (AAPL) itself expected the upgrade cycle to be better than it was.
Drexel Hamilton analyst Brian White believes Apple (AAPL) stock is bottoming out this year similar to how it did in the summer of 2013. His projections suggest that the company’s sales and profit cycle troughed in the June quarter.
“Moreover, recent run-ins with the FBI, China Government, EU and short sellers has [sic] made Apple the ‘Jason Bourne of Tech,'” he added. “Similarly, just as the market calls for Apple’s (AAPL) undoing, the company emerges even stronger.”
Goldman Sachs analysts said recently that they believe the iPhone 7 will be just “good enough” to convince Apple fans to upgrade. Of course we won’t know anything for sure until this year’s models actually become available and we get an idea of how sales are going.
How will the iPhone 7 do?
Although rumors about the iPhone 7 abound, Milunovich notes that it’s challenging to guess the features Apple (AAPL) will including. He also points out that investors care more about how the phone will sell after it is introduced. He estimates 222 million iPhones for fiscal 2017, which is in line with consensus, but he’s significantly ahead of consensus for fiscal 2018 as he expects a mega-cycle for the iPhone 8 next year. He’s projecting 265 million units, compared to Wall Street’s consensus of 240 million.
He believes that many of those who bought iPhones in fiscal 2015 will upgrade in fiscal 2018 if they don’t do so in fiscal 2017 (this year). As a result, the weaker the iPhone 7 cycle is, the stronger next year’s iPhone cycle will be.