A report claiming iPhones will have bigger screen could add over $3 in EPS in the second half of the year. This was published by Brian Marshall, an ISI Apple analyst. According to the report, the upgrade cycle will not be fully reflected in the stock price.

"Large-screen envy is prevalent among the iPhone installed base" and "we believe a ~5" form-factor iPhone would spark a massive upgrade cycle as well as many 'Android switchers' returning back to the iPhone," Marshall said.

This summer, Marshall noted Apple will release two variants of iPhone in 4.7-inch and 5.5-inch displays. He cited in the 2011 to 2012 timeframe, about 10 to 11 percent of iPhone owners upgraded in any quarter, which has recently fallen to 9 percent recently.

December had the highest replacement rates since the iPhones hit the shelves but the upgrade rates fell in the past 2 years because of seemingly less reason to upgrade.

By the end of this quarter, Marshall estimated Apple will have sold over 500 million iPhones and approximately 260 million units are the present initial base. At an average selling price of $600, each 1 percent incremental replacement rate generates $1.56 billion in revenues based on Marshall's 260 million initial base.

Marshall predicted the replacement rate might get back to its peak from 12 to 14 percent when iPhone 6 hits the shelves.

In the event that iPhone's gross margin will reach 45 percent, each 1 percent incremental replacement rate would add $0.59 and $3.55 in EPS in 2014.

In a nutshell, it is quite hard to argue that iPhones with bigger screen will not increase the replacement rate. But the question on how high the replacement rate moves up arises given that much of the present initial base is locked in for 2 years.

Marshall's 2014 EPS prediction is $42.50 devoid of incremental iPhone upgrade assumption and it would increase to $46 if the prediction is accurate. Although the timing is a bit off track, its effect might shift to March 2015.

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