Here's what Wall Street expects from the Apple iPhone event Tuesday and its meaning for the stock

Published Mon, Sep 11 20233:07 PM EDT

Apple is widely expected to roll out a new iPhone at its "Wonderlust" launch event Tuesday, and if history is any guide, there may be no better time to consider snatching up shares. Apple's stock tends to outperform six months following an iPhone launch, but moves in line with the market within one to three months following the event, according to Morgan Stanley analyst Erik Woodring. Apple's launch event, during which it's expected to introduce the iPhone 15 and Apple Watch Series 9, comes amid a tough backdrop for the stock in recent sessions. Apple pulled back 6% last week following reports that China banned the use of iPhones at government agencies and at state-owned enterprises where, in any case, the economy is weaker and consumer spending is slowing. Shares are down 4.4% this month but have rallied about 38% year to date. AAPL mountain 2023-09-01 Apple shares since the start of September "We believe key to watch this year will be any impact on demand from price increases for Pro models," said Barclays analyst Tim Long in a note Monday, referring to average selling prices. Even in the U.S., "We think there will be headwinds to units as Pro model ASPs are set to increase against the weaker macro backdrop." Wall Street expects this year's iPhone to include minor updates, including a refreshed internal processor, frame and USB-C ports, while Pro models could include an upgraded camera, battery and processor. Some analysts expect the updated Apple Watch to offer an improved battery and new band colors. New Pro features have many analysts bracing for price hikes to Pro models. Long expects a $50 to $100 increase for the iPhone 15 Pro and a $100 to $200 hike for the Pro Max model. Raising prices could lift iPhone revenue estimates by 6% to 8%, said CFRA's Angelo Zino in a recent note. "As in recent history, and unlike at WWDC with the unveiling of the Apple Vision Pro, we expect a quiet new product launch and lacking in the 'wow' factor," said Jefferies analyst Andrew Uerkwitz, referringto Apple's Worldwide Developers Conference. "And that's a good thing. Apple has been very consistent in its build quality, software updates, and in turn, market share gain." What it means for Apple shares Looking ahead, Wall Street sees a positive setup for Apple shares over the long term, but those tailwinds could take time to play out. The stock's historical performance also suggests it's entering a slightly weaker period. Along with recent news out of China, Apple faces a challenged upgrade cycle amid signs of softening consumer spending. These weaknesses should outweigh positive catalysts such as product innovation in the near-term, said Bank of America analyst Wamsi Mohan, who recently retained just a neutral rating on Apple stock. AAPL YTD mountain Apple shares since the start of 2023. Where the stock goes from here may mimic history, although low buyside estimates and expectations for flat shipments could alter this year's setup, said Morgan Stanley's Woodring. Apple's launch often plays out as a "sell-the-news" occasion, he said, with shares underperforming on average by about 15 basis points on the day of a launch and in line with the market in the one to three months that follow. Data analyzed by Bernstein shows a similar pattern for Apple shares before and after a launch event. In 15 of the last 17 years, Apple shares have outperformed the market by nearly 14% on average in the three months before a launch and outperformed by nearly 19% six months prior, noted analyst Toni Sacconaghi. "On net, we see risk-reward on Apple as neutral to modestly negative, given Apple's valuation remains elevated vs. history, consensus estimates for 7% revenue growth appear optimistic (particularly given a 53-week compare), and the stock is entering into its seasonally weaker trading period," he wrote. But investors willing to wait out the period of underperformance could see shares outperform by 8% on average in the six months after the event, Woodring noted. Tailwinds such as pent-up demand and easy year-over-year comps also position Apple for outperformance in the new year, and support Morgan Stanley's 8% above consensus estimate expectations for iPhone revenue, he added. "We believe that as FY24 iPhone expectations move higher, Apple can continue to outperform, as positive estimate revisions offset very moderate multiple compression," Woodring wrote. — CNBC's Michael Bloom contributed reporting