Apple iPhone 6: What Wall Street's Saying

NEW YORK (TheStreet) - Apple (AAPL) is gearing up for its next iPhone release, widely expected to be unveiled at a Sept. 9 event, which has helped spur renewed interest in Apple from an investor and consumer perspective.

Apple shares are up 24% year to date, but were trading down on Wednesday by 3.5% to $99.70 following a research note from Pacific Crest Securities saying to sell shares ahead of the event.

As chatter picked up about the iPhone with several sell-side analysts publishing notes on what to expect from Apple, Samsung held a triple-city simultaneous event in New York, Berlin and Beijing on Wednesday to release two new so-called phablets - the Galaxy Note Edge and the Galaxy Note 4 as well as the Gear VR headset, using technology from Facebook's (FB) Oculus Rift.

Here's what analysts are saying on Wednesday about Apple:

Andy Hargreaves, Pacific Crest Securities (Outperform; $100 PT)

We recommend taking profits in AAPL. Unless next week's event details massive incremental profit opportunities, we are likely to downgrade AAPL's rating. We expect Apple to gain material share and see a higher rate of early upgrades through the iPhone 6 product cycle. However, we believe sales to new iPhone users will decline beyond the iPhone 6, which is likely to drive iPhone unit sales down in F2016. Anticipation of this is likely to drive multiple compression through F2015 as the iPhone 6 cycle progresses. Even if we stretch our estimates for F2015 iPhone units, the likelihood for multiple compression over that time suggests the majority of potential upside from iPhone 6 is priced into the shares.

AAPL trades at 6.5x our F2015 EBITDA estimate of $70.0 billion and at 6.0x a bullish F2015 EBITDA scenario that includes an extra 15 million iPhone sales and 15 million iWatch sales. This leaves limited room for upside to the stock, in our view, unless Apple launches new products that can generate billions of dollars of incremental operating profit. We will be looking for this type of potential at the Sept. 9 event, but are likely to downgrade AAPL if we do not see it.

As our coverage has evolved, we recognize human interface as the overarching theme that ties our covered companies together. Whether we are looking at display, touch, or motion sensing, nearly every company we cover affects the way we interact with electronic devices. We think no company understands better and disrupts the way we interact with devices more often than Apple. This is why we have assumed coverage of this name. We think of Apple as a human-centric technology product development company. At the front and center of all its products is the focus on better user experience. In this note, we try to provide some unique angles to look at the upcoming iPhone 6, based on our understanding of Apple.

We feel comfortable predicting that iPhone 6 will be the best iPhone to date, with its larger displays, sharper and faster camera, more convenient and intuitive interfaces, more acute contextual awareness, and expanding soft suite and application platforms.

Jim Suva, Citigroup (Buy; $110 PT)

Summary of what we expect: 1) "more" iPhone screen size at 4.7 inch with high volume available for purchase late Sept, 2) even "more" iPhone screen size at 5.5 inch with limited volume at launch and high volume available for purchase before Black Friday, 3) even "more" Apple lifestyle uses with iWatch announcement but we are skeptical if it will make it to retail by Black Friday, 4) "more" functionality with NFC enabled purchases from both iPhone and iWatch, 5) "more" battery life for iPhone and iWatch battery better than current smart watches, 6) "more" health, fitness, and enterprise foundation building blocks such as security for building access and potentially driver's license, 7) "more" enhancements to continue to improve the user experience such as Sapphire glass on some models, more memory, etc. In this report we detail our iPhone 6 units and iWatch assumptions as well as the past stock price performance surrounding such events which shows Apple stock outperforms into such events and then underperforms for the time period post the announcement and into the actual retail launch.

We reiterate our Device Acceleration theme based on our view that the upcoming iPhone 6 will not only be the largest launch ever but also Apple's installed base of ~300 million users is set to upgrade faster than ever due to recent changes in carrier behavior that allows customers to upgrade before their traditional 2-year contract is up for renewal. This drives our sales and EPS above consensus and we model less than half the installed users upgrade in the first year.

TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"We rate APPLE INC (AAPL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and solid stock price performance. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 6.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although AAPL's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.18, which illustrates the ability to avoid short-term cash problems.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • 44.56% is the gross profit margin for APPLE INC which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 20.69% is above that of the industry average.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 45.80% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AAPL should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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