Is There Immediate Upside To Apple 2016 Estimates?

It's not exactly a revelation if I were to say that sentiment and expectations for Apple are probably at the lowest point they have been in at least a couple of quarters or so. Some would say expectations have been sour on Apple for even longer. So be it.

After all, Tim Cook, CEO of Apple, himself said on the company's December earnings call back in January that the current (Q2:16 for Apple) would be the toughest in terms of compares to the same quarter last year.

In addition, Tim Cook put a big scare in investor's minds when he said on the conference call that there were signs of a slowdown in China and HongKong, Apple's fastest growing area.

Finally, we also have the very public struggle of Apple versus the FBI and Big Brother also hanging over the shares at the moment.

Given the above reasons, we have had most Apple analysts "loudly" slashing their estimates going forward citing the usual channel/supply chain/Asia tech team checks as reasons for lowering their estimates.

As a result, we have sentiment, expectations and valuations at pretty depressed levels, the $10-$12 per share rise in the shares since the February "head for the hills" lows notwithstanding.

So, what's Katy Huberty at Morgan Stanley thinking when she said that there is immediate upside to Apple numbers in the current quarter? She put out a report last week that said, based on Morgan Stanley's iPhone tracker, sales for the current quarter had an upside of 6-7 million units compared to Street consensus of 50 million units and Tim Cook's guidance of approximately 51-52 million units for the March quarter.

The report also stated that sales in China (region) were seeing the strongest growth and favorable trends on not only a sequential quarter basis but also year-on-year (YoY).

Apple is holding a new product event on Monday, March 21 where the expectations are for the company to unveil a new 4" iPhone (called iPhone SE per chatter) in addition to an iPad Pro, etc. and if those expectations are met and the company does unveil the small iPhone look for estimates for 2016 to get a further boost right off the bat.

If the smaller iPhone is not unveiled come Monday, that could be viewed as a disappointment, which could make the shares even more attractive than they already are.

A smaller, less expensive phone could turn out to be the trigger point of huge sales growth in countries like China, India and other South and South Eastern Asian countries. In addition, many users of iPhone 6 have said they love the larger display but also find the larger size difficult to use with one hand.

So, the smaller size iPhone could be just the perfect catalyst to goose unit sales going forward and help the company grow its burgeoning ecosystem even faster than it already is growing.

Add in expectations of a larger dividend and an increased buyback (lower share count) that will more than likely be announced next month (April 2016) and you have a pretty strong investment thesis for investing in or adding to Apple right off the bat.

Most of the Apple analysts continue to be agnostic on the stock however with the unveil of a smaller iPhone, increased dividends, expanded buyback, their stance could soon change. Factor in the Morgan Stanley AlphaWise tracker results for the current quarter and you have some immediate and significant upside to estimates and as a result to price performance of Apple right now.

(Long aapl, calls)

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