Apple's New iPhone May be a Yawner, but Don't Get Caught Sleeping on the Stock - Barron's

Tim Cook, chief executive officer of Apple Photograph by David Paul Morris/Bloomberg

Apple should be showcasing its new iPhone at its even next week—and interest has rarely been lower. But it might not matter, at least not until next year’s unveiling.

Ahead of Apple’s “special event” on Tuesday, a quick glance at search data from Google Trends reflects little excitement about the new phone. Google searches for the term “iPhone” peaked in September 2012, when the iPhone 5 was unveiled. Though interest usually spikes around product announcements in September, their peaks have steadily declined since 2015.

Consumers aren’t the only one’s feeling lukewarm about the iPhone 11—fund managers are too, according to Bank of America Merrill Lynch. “Apple decreased in position size to the lowest level since [January] 2016, which reflects unwarranted near term pessimism,” Merrill analyst Wamsi Mohan wrote. “We view AAPL ownership and weightings as reflective of lack of excitement around an imminent product cycle and concerns around trade impact.”

An Apple representative didn’t immediately return a request for comment.

Apple stock (ticker: AAPL) has gained nearly 35% this year despite ongoing headwinds that include President Donald Trump’s trade war with China and slowing iPhone sales. Against that backdrop, Apple’s unveiling of its latest line of iPhones and other devices will be crucial for the company, according to Wedbush’s Daniel Ives. Some have even argued that Apple’s stock will fall because of disappointing iPhone sales.

PiperJaffray’s Michael Olson isn’t so sure. Yes, interest in the iPhone 11 is lackluster, but consumers may be waiting for an iPhone with 5G capability, he wrote in a note on Thursday. PiperJaffray’s September survey of iPhone owners showed that 23% would upgrade to a $1,200 5G iPhone the next time they get a new phone, up from 18% in a June survey.

“We see this as a high level of interest given limited 5G marketing/chatter to date and the high price point suggested in our survey,” wrote Olson, who maintained an Overweight rating with a $209.19 price target on Apple stock.

He noted that consensus estimates call for 190 million iPhones to ship in fiscal-year 2021, generating $145 billion of segment revenue, which implies an average selling price of $763 across all iPhones.

If that 23% of iPhones bought in fiscal year 2021 are 5G and go for $1,200, Apple would need to sell the remaining units only at an average selling price of $633 to meet that consensus revenue estimate. That is lower than non-5G iPhones typically go for. That leaves room for revenue upside if the survey, which was conducted only in the U.S., holds up across the board.

For the rest of the year, Olson expects less excitement for the new non-5G iPhones, though Apple’s services business and non-iPhone devices could still keep investors happy “until anticipation for 5G iPhones intensifies.”

Next week’s reveal may be a snoozer, but don’t sleep on 2020’s.

Write to Connor Smith at connor.smith@barrons.com

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