Apple $AAPL+0.5% is widely expected to unveil a new iPhone at its "Wonderlust" event on Tuesday, and if history is any guide, there may be no better time to consider buying the stock.
According to Morgan Stanley analyst Erik Woodring, Apple stock tends to outperform six months after the iPhone launch, but it moves in line with the market during the one to three months following the event.
Apple's preview event, during which it is expected to unveil the iPhone 15 and Apple Watch Series 9, comes against a backdrop of difficult stock performance in recent sessions. Last week, Apple pulled back 6% following news that China banned the use of iPhones in government agencies and state-owned enterprises, where in any case the economy is weaker and consumer spending is slowing. The stock is down 4.4% this month but up 38% since the start of the year.
"We think the key to watch this year will be any impact of the Pro model price increases on demand," Barclays analyst Tim Long said in a note Monday, referring to average selling prices. Even in the U.S., "we think there will be an increase in units as Pro model prices increase against the backdrop of a weaker macroeconomic environment."
Wall Street expects this year's iPhones to feature minor updates, including a refreshed internal processor, bezel and USB-C ports, while Pro models could include an improved camera, battery and processor. Some analysts expect the updated Apple Watch to offer an improved battery and new strap colors.
Many analysts are bracing for a price increase on Pro models because of the new Pro features. Long expects the price of the iPhone 15 Pro to increase by $50 to $100 and the Pro Max model to increase by $100 to $200. The price increase could boost iPhone sales estimates by 6 to 8 percent, CFRA's Angelo Zino said in a recent note.
"As in recent history and unlike WWDC with the introduction of Apple's Vision Pro, we expect a quiet launch of new products and a lack of 'wow' factor," Jefferies analyst Andrew Uerkwitz said, referring to Apple's Worldwide Developers Conference. "And that's a good thing. Apple has been very consistent in quality of execution, software updates and, consequently, in gaining market share."
What it means for Apple stock
Looking ahead, Wall Street sees a positive setup for Apple stock in the long run, but it may take some time for that tailwind to kick in. The stock's historical performance also suggests it is entering a slightly weaker period.
Coupled with recent news out of China, Apple is facing a challenging upgrade cycle amid signs of softening consumer spending. These weaknesses should outweigh positive catalysts such as product innovation in the near term, said Bank of America analyst Wamsi Mohan, who recently maintained only a neutral rating on Apple stock.
Where the stock goes may follow history, though low estimates on the buy side and expectations of steady supply could change this year's setup, said Morgan Stanley's Woodring.
Apple's stock launches often play out as "sell the news" opportunities, he said, with the stock lagging by about 15 basis points on average on the day of the launch and tracking the market over the next one to three months.
The data analyzed by Bernstein shows a similar pattern for Apple stock before and after the launch. In fifteen of the past seventeen years, Apple stock has outperformed the market by an average of nearly 14% in the three months before going public and by nearly 19% in the six months before, noted analyst Toni Sacconaghi.
"On net, we view Apple's risk-reward as neutral to slightly negative, given that Apple's valuation remains elevated relative to history, consensus estimates of 7% revenue growth appear optimistic (especially given the 53-week comparison), and the stock is entering a seasonally weaker trading period," he wrote.
However, investors willing to wait out the period of weaker performance could see the stock rise an average of 8% in the six months following the event, Woodring noted.
He added that tailwinds such as deferred demand and easy year-over-year comparisons also predispose Apple to outperform in the new year, supporting Morgan Stanley's expectation that revenue from iPhone sales will be 8% higher than the consensus estimate.
"We believe that as expectations for iPhones shift higher in FY24, Apple can continue to outperform as positive revisions to estimates offset very modest multiple compression," Woodring wrote.