Naman Shukla is an Analyst at I Know First. He writes and invests in the stock market. Ranked in the top 8 percentile in TipRanks.com. Featured on SeekingAlpha.com, GuruFocus.com, Valuewalk.com among others.

Apple Stock Analysis

Summary:

The iPhone 7 is a great phone and Apple the initial trends point towards massive sales.

The Note 7 debacle will help Apple take a massive lead in the high-end smartphone segment.

The iPhone 6S should witness a milder sales slowdown due to several reasons, which is another positive.

Apple is a buy heading into the earnings report.

Despite facing criticism from bears, Apple (AAPL) has performed really well over the last three months. The highly anticipated launch of the iPhone 7 has reportedly been very successful as well, and given that Apple generates roughly 60% of its revenue from the iPhone, the outlook looks great for Apple investors. I have been bullish on Apple for quite some time now, and with the company scheduled to report its quarterly earnings later this month, I think investors should consider buying the stock.

Apple’s new iPhone 7

After the underwhelming performance of the iPhone 6S and 6S Plus, the launch of the new iPhone 7 models was highly covered. While many bears were expecting the iPhone 7 to flop even before it hit the market, it looks like Apple has delivered a great product.

As a matter of fact, the company has not changed the design of the iPhone this time around as it is similar to its predecessor. But, iPhone 7 Plus has some amazing features which are introduced by Apple for the first time.

Apple has introduced dual camera feature in its iPhone 7 Plus model. However, it is true that this feature is not a new innovation, but rather a copy of feature already offered by the likes of HTC, LG, etc. But, for long-standing iPhone customers, this new feature will prove to be an intense shift.

Moreover, there are two 12 megapixels lens installed on iPhone 7 that help users to take 50 percent brighter images compared to iPhone 6S with escalated shutter speed as well as optical image stabilization. Not only this, it also comprise colour reproduction and AI, which automatically sets exposure, tone mapping, focus etc.

Nowadays, most significant thing for customers to consider while purchasing new phone is its battery life, and Apple has made a great move by considerably expanding the battery life of its new iPhone models.

Apple has also introduced a new colour, Jet Black, for iPhone 7, which sees continuously escalating demand. Moreover, the company also detailed that Jet Black iPhone 7 Plus has an even longer waiting period, topping out approximately six weeks.

Apart from this, the company has also removed the jack due to which the device looks slimmer. All in all, the company has launched a great iPhone this year, which is evident by the fact that pre-orders for these new iPhone 7 devices completely surpassed expectations at carriers like Sprint, AT&T etc.

(Source: Localytics)

In addition to all these tailwinds, another thing to keep in mind heading into the earnings season is that the company’s fiscal first quarter has an additional week this year. In the last two years, the company has shipped approximately 5.7 million iPhones a week during the first quarter of each year. Therefore, an additional week this year will signify an enormous sales tailwind.

Samsung’s exploding Note 7 is a plus for iPhone 7

Samsung has always been Apple’s toughest rival and it really looked the Samsung had outsmarted Apple when its Galaxy S7 model witnessed significant sales growth. Throughout the past few years, Samsung has managed to gain a lead in the smartphone market by introducing low as well as high end smartphones.

However, Samsung’s Galaxy S series operates in flagship segment and competes directly against the iPhone. Till today, the company has launched 7 models of its Galaxy S series ranging from S1 to S7, in which Galaxy S6 and Galaxy S7 also included Edge models that featured a curved screen.

While the Galaxy S7 proved to be a great success, the launch of the Galaxy Note 7 proved to be rather disastrous for Samsung. The Note 7 was supposed to offer tough competition to the iPhone 7, however the device started experiencing adverse battery problem days after its launch causing the device to explode. To solve that issue, the company publicized a global recall, and performed additional test along with a software upgrade.

But, even the recalls and upgrades didn’t solve the problem and the company eventually had to cave in to the exploding devices and halt production. While this may be bad news for Samsung fans and investors, Apple stands to benefit from it directly as it will have a larger audience to appeal to.

iPhone 6S models are not dead, yet

Generally, when any smartphone manufacturer launches a new flagship device, people usually prefer to buy the new model. But, same is not the story in the case of Apple.

Currently, Samsung Galaxy S7 models are competing with iPhone 6S models, whereas the iPhone 7 is without any tough competitor. Few years before, when iPhone 6s models were not launched, the company’s prior generation failed to compete with other Android based smartphones in a meaningful way.

However, this trend may change this year as according to the Geekbench 4 performance test, iPhone 6S models, powered with A9 processor, offer much better single as well as multicore performance compared to majority of high-end Android devices. Older iPhone models tend to sell well in countries with low per capita income due to a steep decline in price caused due to the launch of a newer iPhone. Hence, I expect this trend to play out positively for Apple this year, further strengthening the bull case.

Conclusion

With the iPhone 7(and even the iPhone 6S) expected to perform really well in the coming months, I think Apple is a great buy heading into the earnings season. The Note 7 disaster has opened up a huge opportunity for Apple to gain a massive lead in the flagship smartphone segment, and, due to the reasons mentioned above, I expect Apple to capitalize on it. Thus, I think Apple is a great buy at current levels.

I Know First’s algorithmic forecast is bullish on AAPL in long term in a good agreement with my positive stance on the stock. Therefore, it is a great buying opportunity for investors.

Past I Know First Success With AAPL

I Know First has been bullish on AAPL in past forecasts. I Know First published a 3 months Hedge Fund Package forecast on September 27th, 2016. The forecast was sent to I Know First subscribers on June 26th, 2016, and had AAPL shares had a return of 21.51%, over a 3 months period.

Additionally, On May 23rd, 2016, an I Know first analyst had written a bullish analysis on AAPL in accordance with our state of the art algorithm. Since then, AAPL shares have risen by well over 23% to date.

This forecast was sent out to I Know First subscribers on May 22rd, 2016 . To subscribe now click here.