When Apple (AAPL) announced its iPhone Upgrade Program back on Sept. 9, many questioned its impact on both iPhone sales and Apple stock price.
While AAPL stock has had a rough week, early data suggests that the company’s iPhone Upgrade Program is, in fact, killing it.
What this means is that losses in Apple stock over the last week should prove to be an excellent investment opportunity.
What Gene Munster Is Telling Us
The Upgrade Program allows customers to pay 24 monthly payments on new iPhone purchases, and also includes its AppleCare+ support, with an option to upgrade iPhones annually. This allows AAPL to sell high-margin AppleCare+ plans, it locks customers into the AAPL ecosystem and it allows AAPL to build an inventory of used iPhones that can be refurbished and resold.
Piper Jaffray’s Gene Munster is one of the more well-known Apple stock analysts on the street. Munster is a long-time supporter of AAPL, but he is also unbiased in identifying both areas of promise and concern.
With that said, Munster was very bullish on AAPL’s iPhone Upgrade Program back when the company announced it in September. He originally thought that 15% of new iPhone customers would join the program. However, Munster issued a new note on Monday following a survey of 188 iPhone 6s buyers.
What Munster found is that 37% of new iPhone 6s buyers opted in to the Upgrade Program. Munster now believes the number could be 50% by year’s end. Thus, all of those benefits that stem from widespread adoption of AAPL’s iPhone Upgrade Plan will be amplified, including a higher profit margin.
You Heard It Here First
This data clearly bodes well for Apple stock owners, suggesting a faster iPhone upgrade cycle, higher overall sales and higher margins, among other benefits. Thankfully, Investorplace.com readers expected this result, since I reported on a similar topic back in late September.
In that first report, Investorplace.com readers were told to expect much higher iPhone 6s and 6s Plus sales versus predecessors. The reason is because wireless users in general are transitioning from an every-24-months upgrade cycle to annually. This means higher year-over-year sales for AAPL in 2016, as most of these early upgrade leasing programs, like AAPL’s iPhone Upgrade Plan, came into effect this year with the 6s and 6s Plus.
With all four nationwide wireless carriers offering some variation of AAPL’s iPhone Upgrade Plan, and given that all of these plans have been recognized as very successful for each respectively carrier (and AAPL), all signs point towards a surprisingly strong quarter and year for iPhone sales.
Ultimately, that means a higher Apple stock.
It’s Time to Buy Apple Stock
Initially, prior to the iPhone 6s, 6s Plus launch, analysts expected flat year-over-year shipments compared to last year’s launch. However, AAPL surprised everyone with 13 million shipments in its opening weekend, up from 10 million the year prior. While this year’s launch event included China, and last year’s did not, the data still suggests that AAPL got a big boost from quicker upgrade cycles.
Currently, analysts expect overall revenue growth of just 6% next year — up from the 4.8% increase that analysts expected back in September. Still, with consumers moving from a 24-month upgrade cycle to a 12-month upgrade cycle, there is reason to think that sales will be even more robust than analysts predict.
Therefore, with Apple stock trading 5% lower over the last five sessions and trading at just 10 times next year’s earnings — and the company poised to beat analyst expectations next year — it certainly seems like a great time to buy AAPL.
As of this writing, Brian Nichols did not hold a position in any of the aforementioned stocks.
