Why This Analyst Thinks Apple Inc. (AAPL) Will Miss — and Why It’s a Buy

The next few months are going to be tough for Apple Inc. (NASDAQ:AAPL) investors, as if the last few haven’t been tough enough. Amid investor pessimism, this time of year is seasonally slow for Apple.

Apple Inc. (NASDAQ:AAPL)

The company used to unveil new iPad models in the spring, which could give it a boost earlier in the year, with new iPhones in the fall to carry it into the holiday shopping season. That’s up in the air right now, as the iPad product cycle is anyone’s guess at this point. Throw in the fact that Apple Inc. (NASDAQ:AAPL) is now being rather honest with its guidance forecasts, and investors are contemplating the distinct possibility of earnings misses over the next two releases. Citigroup Inc. (NYSE:C) has been pondering the same thing.

Even though BTIG Research thinks misses are in store for both the March and June quarters, analyst Walter Piecyk has still gone ahead and upgraded shares to “buy” and slapped a $540 price target on the iPhone maker.

June bug
Piecyk’s estimates for the March and June quarters are below consensus estimates, and the company’s June guidance is a risk factor in itself when it announces earnings in April. Results for the June quarter could come under pressure from rival product introductions. Samsung is unveiling its Galaxy S IV today, HTC showed off its new One earlier this month, and Research In Motion Ltd (NASDAQ:BBRY) is also launching its Z10 in the U.S. during March. Both AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) have now announced pricing and availability of the Z10, which will compete on the high-end at $200 on contract.

BTIG notes that tightened carrier upgrade policies weighed on Apple’s iPhone sales in 2012. While slow upgrades were a headwind last year, that could turn into a tailwind in 2013. Investors were pleasantly surprised by the overwhelming interest that the iPhone 4S garnered when it launched in 2011, particularly after skeptics derided it as an incremental upgrade (which it was). But that also means that iPhone 4S buyers are quickly approaching upgrade eligibility within the next couple of months, and if there’s one thing investors know about Apple Inc. (NASDAQ:AAPL) customers, it’s that they’re a remarkably loyal crowd.

Samsung, HTC, and BlackBerry, among other rivals, will be working hard to win those smartphone shoppers over, but an imminent iPhone 5S may hold them at bay.

It’s worth noting that BTIG downgraded Apple Inc. (NASDAQ:AAPL) last April at a time when it saw strong quarters ahead, so upgrading ahead of a weak quarter is the flip side of that equation. Disappointing June guidance could easily knock shares down below $400, but Piecyk still thinks that’s a risk worth taking considering the potential upside.

What’s the rush?
BTIG expects a low-cost iPhone to be launched this year, but is not including the possibility of a larger iPhone in its estimates. The niche phablet trend is undeniably growing, but BTIG thinks that Apple can bide its time due to its brand awareness and differentiated software experience. The sales data also imply there’s no rush.