How the iPhone 6 Could Be a Game-Changer for Apple, Inc. Stock

By this point, it's widely known that Apple's (NASDAQ: AAPL  ) next line of iPhones is likely to sport models with larger displays. The iPhone 6 will allegedly come in two sizes: a 4.7-inch display and a 5.5-inch display. But how will the phone fare in the marketplace?

A record-breaking iPhone 6
As the annual fall iPhone launch approaches, analysts are raising their price targets. The consensus analyst price target for Apple stock is $101.49, just over the stock's all-time high. Central to the increased confidence in Apple's iPhone lineup seems to be the iPhone 6 line.

4.7-inch and 5.5-inch iPhone 6 mockups pictured with the 4-inch iPhone 5s. Image source: 9to5Mac, used with permission.

Consider Evercore analyst Rob Cihra (via AppleInsider), for instance. His target for Apple stock is $115. Part of his reason for such optimism in the stock is his big hopes for Apple's iPhone 6 lineup. He is predicting 58 million units in Apple's first fiscal quarter (the important holiday quarter) of 2015 alone. That's 14% higher than the iPhone units sold in the comparable quarter in 2014. Pent-up demand for an iPhone with a larger display, he says, will serve as a growth driver for the segment.

Apple, too, is apparently betting on a big win for the iPhone 6. Longtime Morgan Stanley Apple analyst Katy Huberty says that suppliers in the Far East are preparing for iPhone 6 sales that are 20% higher than iPhone 5s sales. Considering that the iPhone 5c is thought to only account for a minority of Apple's iPhone sales, this would be meaningful growth for the company.

Is this growth priced in?
Probably not. With Apple's iPhone business accounting for 57% of iPhone sales and an even larger portion of profits, the health has a large influence on Apple's bottom line. Fourteen percent growth in Apple's year-over-year iPhone units, as Cihra has predicted, is likely to help boost Apple's EPS (not considering the impact of share repurchases) by at least 10% incrementally.

Another rendering of the alleged iPhone 6. Image source: Martin Hajek, used with permission. 

Then once you add in the impacts of share repurchases and the potentially wholly accretive sales sourced from Apple's rumored iWatch, it's possible that Apple could grow EPS by as much as 20% in the first fiscal quarter of 2015.

This sort of growth would mark a major uptick to the year-over-year EPS growth of 10.7% Apple reported in the first quarter of 2014. 

If Apple does rekindle growth to these levels, the stock could turn out to be a steal at $94. For instance, if Apple could average 20% growth in EPS for the entire calendar year of 2015, that would put Apple's current price-to-forward estimates of earnings ratio somewhere around a very conservative 12.3. Compare that to the S&P 500's price-to-forward earnings ratio of 16.6. 

While none of this growth is certain, the potential for upside makes Apple stock look enticing. After all, even if Apple fails to boost product sales enough for its products to contribute to EPS growth, its aggressive share repurchase program alone will provide value to shareholders. And given Apple's healthy cash flow, the company will likely authorize more cash for repurchases when this plan expires at the end of fiscal 2015.

The iPhone 6 could be the product that helps Apple prove to the Street how much it has underestimated the company.

The stock that may win big thanks to Apple's alleged iWatch
With the iWatch, Apple may spark a revolution. ABI Research predicts 485 million iWatch-like devices will be sold per year by 2018. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, just click here!

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Daniel Sparks

Daniel is a senior technology specialist at The Motley Fool. To get the inside scoop on his coverage of technology companies, follow him on Twitter.

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