Here’s One Reason to Be Bullish on Apple: The iPhone 6

source: http://www.flickr.com/photos/julialeiby/

source: http://www.flickr.com/photos/julialeiby/

If you ask Pacific Crest analyst Andy Hargreaves, Apple Inc. (NASDAQ:AAPL) is going to launch the iPhone 6 this fall, and it’s going to be a killer. Shares of the consumer tech giant jumped just more than 1 percent on Tuesday, after Hargreaves upgraded the stock from Sector Perform to Outperform on the back of this argument that Apple will charge $299 for the 4.7-inch phone and that it will sell like hotcakes.

This isn’t exactly a new argument — the iPhone 6 seems like the natural iteration of the flagship smartphone — but Hargreaves’s conviction is interesting. In a note seen by Business Insider, Hargreaves set a price target of $630, which is about 7.5 percent above the current mean price target and represents possible upside of about 17.3 percent as of March 11, when the note was published. Hargreaves also thinks Apple will release just one large phone this year, the 4.7-inch model, and not a 5.5-inch “iPhablet” that has been the subject of some speculation.

Still, Hargreaves anticipates that the 4.7-inch iPhone 6 will claim 32 percent of the market at the $299-plus subsidized price point, of which Apple currently claims zero percent. This is expected to cut in to Apple’s 66 percent share of the $199-plus subsided price point, reducing that share to 36 percent, but the transition, Hargreaves argues, would be profitable. He estimates the iPhone 6 will cost just $60 more to produce, giving Apple a nice fat margin on each upgrade. He expects the iPhone 6 to capture 35 percent of all iPhone replacement sales and to create as many as 10 million new customers who previously only had access to large-screen Android phones.

One of the focal points of Hargreaves’s argument is this: The $100 price increase is really not that much for a typical Apple customer. Especially considering the two- to four-year lifespan of a smartphone and the premium product image associated with the brand, Hargreaves expects consumers to tank the $100. Supporting his case is data that show consumers didn’t flock to the lower-cost iPhone C, suggesting that consumers are really looking for quality, not price, out of Apple.

Hargreaves isn’t the only one who is still bullish on Apple. Morgan Stanley analyst Katy Huberty played down concerns about institutional melancholy surrounding the stock and argued earlier in March that wearable technology could be an inflection point.

“In wearables, we see iWatch contributing 32 to 58 million units in the first 12 months post launch based on the historical installed base penetration ramp experienced by iPhone and iPad,” she wrote. “In services, the combination of fingerprint sensor, security features in the A7 64-bit processor, recent sensor and mapping-based acquisitions, with nearly 600M App Store accounts and 380M Bluetooth low energy devices in the wild present opportunities in mobile payments and advertising services.”

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