Ahead of Launch, 1 Analyst Sees Apple's iPhone Sales Jumping

iPhone 5s. Source: Apple.

Apple shares were sold off from levels around $500 after Apple's iPhone media event. But despite the pessimism lingering over the stock, Apple may be prepping to report record fourth-quarter iPhone sales, according to a research note from Morgan Stanley's Katy Huberty.

Huberty's projections
iPhone sell-through data based on web search data? Sounds a bit peculiar. For now, however, Huberty's new method has yet to prove wrong. Last quarter marked the first installment of her new tracker, referred to as Morgan Stanley's AlphaWise Smartphone Tracker, and her estimate of 31 million units was nearly on the mark; Apple reported sell-in iPhone units of 31.2 million for the company's third quarter. Still, with just one quarter of proven performance, the numbers should be taken with a grain of salt.

But if she is accurate again this quarter, her estimates for 34.5 million iPhones would likely surprise. Not only is that number 11% better than the Street's current consensus for 31 million, but it's 28% more units than Apple sold in the year-ago quarter.

Notably, however, her AlphaWise estimates are based on sell-through numbers, not sell-in numbers, which are the numbers Apple reports. In Apple's case, however, these numbers are often close.

Sure, iPhone 5c and iPhone 5s sales will have some impact on the quarter, with sales beginning about a week and a half before the quarter closes out, but Apple's fourth quarter last year benefited from an iPhone launch at the end of the quarter, too. So a 28% gain is a significant accomplishment.

Could Apple return to EPS growth?
For the first time in a while, it's actually possible. Here are three reasons why:

  1. Apple's iPhone segment scores the company's highest gross margins. With iPhone sales up 28% from the year-ago quarter, there's a chance that iPhone sales may be disproportionally higher than iPad, Mac, and iTunes sales. This means Apple's highest-margin business would have a larger influence on the corporate gross profit margin.

  2. With sales up 28% year over year in Apple's largest segment (more than half of revenue), the segment could likely have a positive influence on overall EPS.

  3. Gross profit margin comparisons are getting easier. Last quarter, Apple was up against a 42.8% comparable gross profit margin in the year-ago quarter. This quarter, Apple is up against a gross profit margin of 40%.

If Apple could post higher iPhone sales and improve on the 36.9% gross profit margin it reported last quarter, positive EPS comps may be a reality.

Impressive iPhone sales? Potentially the beginning of a positive EPS trend? With Apple's already conservatively valued stock price taking a dive, the market may be a bit too pessimistic toward Apple stock.

Learn more about Apple
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