iPhone Sales, Profits And Units Will Decline, But The Market Is Looking Forward To iPhone 7

Apple Inc. AAPL will report its second-quarter numbers on April 26 amid difficult year-over-year comparisons for the iPhone. Additionally, the market is looking ahead for the launch of iPhone 7 in September.

In line with other Street analysts, Brian White of Drexel Hamilton sees lower sales, profits and units for iPhone, but said an iPhone 7 launch in September should boost demand, while the potential for increased capital returns should support the stock.

Related Link: Apple iPhone Declines Will Hit Trough This Quarter, Sterne Agee CRT Predicts

The analyst's earnings estimate for the second quarter missed Street's consensus view by a penny. For the second quarter, White sees EPS of $1.99 (Street is at $2.00) on revenue of $52.34 billion (Street is at $51.97 billion).

In January, Apple guided second quarter sales of $50 billion – $53 billion, and White said this "implies an EPS of approximately $1.94 at the mid-point of this revenue outlook."

The analyst noted that his sales estimate implies a 31 percent sequential decline and said this is "the weakest March quarter that we have on record that goes back 18 years and much weaker than the five-year average QoQ decline of 17 percent over past March quarters."

In addition, the analyst models iPhone units of 48.05 million and said "this 21 percent YoY decline represents the trough in this iPhone cycle."

Apple Is Still A Buy

The analyst, who has a Buy rating and $200 price target on Apple shares, projects 11.9 units of iPad, and 4.25 million Macs in the second quarter.

"As the iPhone 6-Series nears the end of this two-year cycle, we expect some volatility; however, we believe the market is looking forward to the iPhone 7 in September. Moreover, our recent China/Taiwan Tech Tour highlighted strong demand for the new 4-inch, iPhone SE," White wrote in a note.

Related Link: S&P Analyst: Here's What Matters Most To Apple Next Week

Looking ahead, White said Apple may issue a "cautious" third-quarter outlook given the end of iPhone 6-series cycle and uncertain macro-economic conditions. The analyst provided his third-quarter estimate, which came in below consensus expectations.

White expects third quarter earnings of $1.60 a share on revenue of $44.55 billion. Street expects earnings of $1.76 a share on revenue of $47.32 billion.

However, the analyst expects Apple to expand its capital return program from the$200 billion ($153 billion used as of first quarter) through March 2017.

"If Apple maintains a March 2017 expiration, we believe a $30-$40 billion expansion is possible, including a 10–12 percent cash dividend increase," White added.