Some investors have started to worry that Apple Inc. (NASDAQ: AAPL) is now almost entirely about its iPhone refresh cycles. That might not sound good, but there is research pointing to very positive trends for an iPhone 7 launch.

Bank of America Merrill Lynch holds a Buy rating with a $130 price target for Apple. The firm said that its U.S. survey was positive for the iPhone 7, showing a solid pipeline for iPhone upgraders.

Monday’s report from Merrill Lynch indicates that Apple’s Buy rating is based on several factors other than just an iPhone 7 upgrade. Continued strength in China and optionality in Apple’s massive cash balance were cited, even if the firm does see the potential release of a lower end iPhone and strength in the upcoming iPhone 7 cycle being solid trends for Apple.

Merrill Lynch’s survey was from over 1,000 respondents across various demographics. Some 42% of the respondents who intend to purchase an iPhone say they are waiting for the iPhone 7. And 51% of respondents who are waiting for the iPhone 7 are current iPhone 6 or 6 Plus users, and another 26% are current 6s and 6s Plus users. Of the current iPhone 5s owners, 49% plan to purchase the iPhone 6s or 6s Plus and 21% of current 5s owners are waiting for the iPhone 7.

The report from Wamsi Mohan said:

In our opinion, this suggests that there is a high intent to upgrade even for owners of the newer models, contrary to expectations that the iPhone 7 will need to have revolutionary new features to drive an upgrade cycle.

The long and short of the matter is that Merrill Lynch feels that Apple has share gains ahead as its replacement cycles seem relatively unchanged. Another issue in the report was that only 6% of iPhone users plan to switch to a different brand, while 22% of non-iPhone owners intend to switch to the iPhone, indicating continued share gains.

Another issue was that the annual replacements are not yet gaining traction, with 55% not interested, but 45% of respondents would consider it if the pricing was below $30 per month. The firm’s prior installed base analysis suggests that users upgrade between two and three years, and this survey suggests more of the same.

With the ecosystem strong, Merrill Lynch feels that the attach rates have room to increase and points out that iPhone owners tend to have a propensity to buy other Apple products. The firm even thinks the Apple Watch can have a material increase in attach rates if a better battery life and other features are included. Merrill Lynch also sees a similar dynamic with Apple TV being underpenetrated, better Apple Music attach rates and other Apple services all acting as long-term tailwinds.

Monday’s report concludes:

Since our recent upgrade of shares of Apple to Buy, investors remain concerned that the iPhone 7 might not add compelling enough features to drive a strong cycle. Our U.S. survey results show that the appetite for future upgrades remain robust, loyalty to the Apple ecosystem remains high and switching from Android will continue to take place. We remain optimistic on a strong iPhone 7 cycle and reiterate our Buy.

Apple shares were last seen up 0.7% at $94.67, within a 52-week range of $92.00 to $134.54. The Merrill Lynch price objective of $130.00 compares to a consensus analyst target price of $136.25 from Thomson/First Call.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.