'Very low' expectations for Apple earnings set up positive risk/reward, Wells Fargo says

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Ahead of its June quarter earnings report next week, a number of factors have put Apple in a position to exceed investor expectations, making it a good time to buy into the company's stock, one analyst believes.

Maynard Um of Wells Fargo Securities issued a note to investors this week, a copy of which was provided to AppleInsider, in which he said he likes the conditions ahead of next week's Apple earnings. In particular, he said that investor expectations remain "very low" before the June quarter print.

Beyond that, Um sees a number of other factors playing to Apple's advantage, including the fact that the "iPhone 7" is rumored to look largely the same as the current iPhone 6s. While many see this as a negative in terms of driving sales, Um believes that using the same essential form factor could offset the typical cyclical decline in gross margins.

In addition, after the booming iPhone 6 product cycle, many customers will have had their handset for two-plus-years and could be due for upgrades, Um said.

He also believes that consensus estimates for iPhone sales in the December quarter and beyond look very conservative, putting Apple in a position to exceed expectations. His own forecast calls for Apple to ship 77.5 million iPhones in the December quarter, above Wall Street estimates of 75 million.

"With what we believe to be one of the lowest periods of investor sentiment, we believe any positive data points (such as supply chain) could rally AAPL shares, particularly if our analysis and premise about iPhone 7 units is correct (we believe carriers will want to limit churn of the large base of subscribers coming off contract)," the analyst wrote.

Wells Fargo has maintained its "overweight" rating for shares of AAPL, with a "valuation range" of between $115 and $125. Though Um believes investors should buy in, his price target range is slightly reduced from between $120 and $130.

Apple is set to report its June 2016 quarter results next Tuesday, July 26, after markets close. A conference call featuring company executives will follow at 5 p.m. Eastern, 2 p.m. Pacific, and AppleInsider will provide full, live coverage.


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