This is the trough for Apple; innovation engine is still there: Analyst

Apple shares plunge on miss
Apple shares plunge on miss
iPhone 7 reinvigorates Apple: Analyst
iPhone 7 reinvigorates Apple: Analyst
Street cutting Apple price targets after earnings
Street cutting Apple price targets after earnings

Apple's stock is sliding following its first quarterly revenue decline in 13 years, but this will likely be the trough for the iPhone maker, Stifel Nicolaus analyst Aaron Rakers said Wednesday.

Shares of Apple were down 6 percent at $98.05 a day after the tech giant's earnings report. The report fell short of Wall Street's expectations, and the company saw iPhone sales decline year over year for the first time ever.

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Rakers said the stock will reach a discount of $8 per share on the earnings report, but the iPhone 7 release scheduled for later this year will provide about $9.40 in earnings power. Following Tuesday's report, Stifel is modeling a 9 percent revenue decline for 2016 and a return to growth next year.

"Given that we estimate about a 620-million-plus install base for iPhones, we like the setup going into the iPhone 7 cycle, and particularly going into the December and March quarters of next year," he told CNBC's "Squawk Box."

"Apple has a 95-plus percent loyalty rate in terms of upgrade rates on their iPhones, and we think the innovation engine is still there in terms of future products to come," he said.

Rakers has a $120 price target on shares of Apple, down from a high of $135.

Cowen and Company analyst Timothy Arcuri said Wednesday he believes the iPhone 7 upgrade cycle will be better than the Street expects. Further, he said, it provides a bridge to an even more robust upgrade cycle the following year, when he believes Apple will introduce OLED displays.

If the iPhone 7 embraces OLED technology, it would increase display quality, further advance battery performance and bring a new cycle of innovation that could include curved or foldable screens, he told CNBC's "Squawk on the Street."

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Other analysts, however, believe it's no longer worth holding shares of Apple through the iPhone 7 launch.

"What I fear, and we'll have to see more evidence, is that we have the same situation we saw a couple years ago, where gross margins declined, you saw market share declines, and a lack of innovation," said Channing Smith, managing director of equity strategies at Capital Advisors.

While Apple has maintained its market share thus far, emerging market growth is in question as revenue in China fell 7 percent on a constant currency basis, he told "Squawk on the Street."

Smith said Apple has a growth investing base, but no growth. Gains in its services business cannot offset declines in other critical areas, he added.

"We're positive on the iPhone 7. We think it will be a big success. We were hoping to limp along until we got to July, August, when we start anticipating you get the anticipation trade in Apple, but that's not happening," he said.

"All of a sudden we potentially have some issues that might be of deeper concern here."

Disclosure: Stifel Nicolaus owns greater than a 1 percent share of Apple stock. Stifel or an affiliate is a market maker or liquidity provider in the securities of Apple.