5 reasons Apple is still a screaming buy as iPhone 7 cycle begins

Samsung’s woes could boost Apple, analysts say

The new iPhone 7 may have failed to impress analysts and consumers, but there are plenty of reasons why you should still be excited about Apple shares as it releases its new handset, says RBC Capital Markets.

In a note out on Wednesday morning, the bank’s tech analysts led by Amit Daryanani, reiterated their outperform rating on the stock, saying there are five tailwinds that will help Apple AAPL, +3.54% take off from current levels as the iPhone 7 cycle kicks off.

“We believe AAPL’s current stock price creates an attractive entry point for investors to benefit from its ability to return to revenue and EPS growth in FY17,” the analysts said in the note.

They kept their $117 target price on the stock, indicating an 8.3% potential rally from Tuesday’s closing price of $107.95. In a best-case scenario, Apple could even surge to $150, according to RBC.

See: iPhone 7 and Apple Watch Series 2 Underwater Tests

“From a product perspective, we believe the company can continue to gain share in both the tablet and smartphone space,” the analysts said. “In our view, the smartphone space is currently a two-horse race where Apple will be one of the winners in continuing to gain market share.”

Five tailwinds for Apple

1. Samsung’s woes

The first major tailwind for Apple, according to RBC, is the challenge facing competitor Samsung, which recently had to recall 2.5 million Galaxy Note 7 large-screen smartphones due to faulty batteries. Sales expectations for the iPhone 7 have been relatively subdued, but now with Samsung scrambling and facing consumer anger there is potential for Apple to surprise to the upside, RBC said.

2. Higher selling prices

The iPhone 7+ marks the first time Apple’s premium model has truly differentiated itself from the normal handset, beyond just the larger screen and better resolution, the analysts noted. The dual-lens camera on the 7+ version is one of these key features, which could push more users into buying the superior model, which is $120 more expensive than the standard phone, they said. Historically, the spread has been $100, so strong 7+ sales could lift the average selling prices of iPhones.

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3. Attractive valuation

Apple shares currently trade around a 25% discount relative to the S&P 500 indexSPX, -0.06% making it close to a historical trough. With a cash balance of more than $200 billion coupled with the iPhone 7 potential, the RBC analysts are confident shares will rise from here.

4. Volatility outlier

A fourth RBC argument for buying Apple, is the stock’s history of performing well in times of high volatility, which has become a major theme of late. Wall Street’s “fear gauge”, the CBOE Volatility Index VIX, +1.62% jumped to the highest level since the U.K.’s Brexit vote this week, as shares overall tumbled. However, Apple stood out as one of the few Nasdaq-100 NDX, +0.49%  shares in positive territory, shrugging off the wider market panic.

5. December boost

Sales in December could be higher than currently forecast by Wall Street, as the holiday sales period is a week longer this year than usual. This could boost iPhone sales to 79 million units for the December quarter, up 6% compared with last year, and better than the 74 million consensus forecast.

By Sara Sjolin

Source :http://www.marketwatch.com/story/5-reasons-apple-is-still-a-screaming-buy-as-iphone-7-cycle-begins-2016-09-14