For the first time in a long time, things are starting to look up for Apple Inc. (AAPL) stock. Off 15% in the last year, AAPL shares have languished due to softening demand for the company’s products and services — most notably the iPhone.
In the holiday quarter, for example, the number of iPhone units Apple sold increased literally 0% year-over-year, while iPad unit sales slumped 25% (PDF).
It’s a testament to the “Services” and “Other Products” segments — including the likes of Apple Pay, AppleCare, Apple TV, Beats and the Apple Watch — that revenue increased (2% YoY) at all.
With that in mind, it’s not so hard to see why AAPL recently tested lows around $92/share. There’s frankly some great news on the horizon for Apple investors, however, and if it holds any weight, it could send Apple stock back on its way to $120-plus.
iPhone Demand: “Surprising Upside”
The product line that absolutely must perform well in order for Apple to thrive is the iPhone, which accounted for 68% of overall revenue last quarter.
As I mentioned, iPhone unit growth was zilch last quarter, and therefore Apple’s growth profile is looking extremely weak. Analysts expect revenue to fall 10.3% in the March quarter from the same period last year.
Or at least they did. Given some new data, the Wall Street consensus might deserve a decent bump upward.
Morgan Stanley’s Katy Huberty noted on Tuesday that the Wall Street research firm was seeing “surprising upside to iPhone demand.”
Using a proprietary web search analysis tool, Huberty now believes Apple will sell 56.5 million iPhones in fiscal Q2 (the Jan-March quarter), significantly higher than Apple’s own implied guidance of 52 million.
That’s some really important intel, especially considering the source of the information. Huberty herself had previously expected Apple to sell only 49 million iPhones in the March quarter, so she’s not just some AAPL stock fangirl who spouts out rosy guidance with regularity.
AAPL stock is trading higher Tuesday on the news, bucking the trend of a generally down broader market. It absolutely deserves to be gaining ground, too.
The good news comes as Apple stock is making a technical resurgence; shares have rebounded strongly off February lows, breaking through its 50-day moving average in early March. The next major technical test for AAPL stock will be to see if it can burst through its 200-day moving average, currently at $111.75.
If it can do that, it’s off to the races. And while it may take another week or two, I believe AAPL can and will make that jump.
Bottom Line for AAPL Stock
Not only are Tuesday’s Morgan Stanley numbers impressive, but the upcoming March 21 event should bring nothing but good news for shareholders. Apple is expected to unveil a new 4-inch iPhone called the iPhone SE at the event, as well as a smaller, 9.7 inch iPad.
I expect the smaller iPhone in particular to sell well and benefit from latent demand from customers who prefer smaller-sized iPhones (Apple hasn’t dropped a 4-inch model since 2013).
All of this points to better-than-expected results for AAPL in the months ahead, and the fact that Huberty said China was responsible for the most upside in her recent note on iPhone demand is extremely encouraging.
Not only should Apple’s financials be easier to tolerate for the current quarter, but market sentiment should improve as AAPL stock owners realize the company isn’t languishing.
A few months from now, when we know all the dirty details of Apple’s fiscal Q2, we’ll look back at March 15 and say: “$105? That was a steal.”
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
