Here's good news for Apple stock

Apple stock has been taking a beating since the company reported its first sales drop since 2003 earlier this year.

Now analysts are reading the tea leaves to see whether there’s a potential bump in sales when the iPhone 7 is expected to launch in 2016 or beyond.

Here’s good news for Apple investors: several analysts, checking in with Apple’s Asia supply chain, sound relatively bullish on iPhone sales going forward.

Let’s recap:

1. Taiwan’s Economic Daily News reports that Apple is preparing to produce as many as 72 million to 78 million iPhone 7 units.

That estimate, spotted by Barron’s, would mean that Apple is aiming for its highest production target in two years.

The newspaper cited Apple’s suppliers, including Hon Hai Precision Technology (better known as Foxconn) and Pegatron.

That would indicate that Apple is expecting to sell more iPhone 7 units than it did iPhone 6 units. The iPhone 6 cycle was record-breaking and its success is a big reason why sales in this iPhone 6S cycle are down.

2. The iPhone 7 upgrade window is potentially massive

One reason why Apple might be building so many iPhone 7 units is that the upgrade cycle is shaping up to be a big one, according to BMO Capital Markets analysts.

From the note:

What we find most interesting is that we believe we are entering the iPhone 7 cycle with this highest percentage of phones in the installed base at least two years old, at about 26% (compared to 23% for iPhone 6). This translates to about 120 million phones. As a result, we believe the device will drive an improved replacement rate even if it has lacklustre features.

In a separate note, Pacific Crest securities analysts write that the iPhone 6 cycle expanded the iPhone user base by 100 million people, and eventually, those users should need to upgrade to a new phone. And even if Apple’s latest customers hang on to their iPhones for longer than before, that should “reduce growth, not prevent it.”

People who upgraded during the iPhone 6 cycle will “come into a normal upgrade window during the iPhone 7 cycle, which should drive significant growth in upgrade volume and overall iPhone unit growth in F2017, almost regardless of hardware innovation,” the authors write.

However, the authors point to the weakness in the iPhone 6S cycle, saying that ultimately, they estimate that iPhone unit sales will decline almost 8% in 2016. However, the analysts believe they should grow 10% in 2017.

Pacific Crest has an overweight rating on the stock, with a price target of $123. BMO Capital Markets rates the stock outperform with a target price of $117.

3. Analysts say that the “iPhone SE launch has proven more robust than expected.”

And as it turns out, the most recent iPhone launch, for the lower-cost, entry-level iPhone SE, has been a hit, according to an equities note issued by Nomura.

Analysts says that supplier order are rising, and around the world, lead times for an iPhone SE “remain elevated” at about 2 to 3 weeks. Apparently, sales in China and the United States account for about 50% of iPhone SE sales.

However, this does raise the possibility that many new consumers will opt for the $400 iPhone SE instead of the iPhone 6S or the iPhone 7 when it comes out.

From the note:

The new iPhone SE launch has proven more robust than we expected … We consider this a mixed blessing as the strength likely includes cannibalization of the ever-weaker iPhone 6s … We had initially anticipated 10-20mn in the SE’s first year; we now believe volumes will reach 30mn by year-end. Our checks imply that Apple has increased its production forecast.

Nomura analysts say they believe that Apple will “take a conservative view on production” of the iPhone 7 to avoid a glut of unsold phones.

Nomura has a buy rating on the stock, with a target price of $120.

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