Brean: Apple Has 'Material' EPS Upside This Quarter

In a report published Tuesday, Brean Capital analyst Ananda Baruah reiterated a Buy rating and price target of $170 on Apple, Inc. AAPL. The analyst believes that the company is well positioned to deliver significant upside to the street EPS expectations through 2017. "Fundamentally speaking, we believe AAPL stands to deliver material EPS upside from 1) iPhone ships through '17, 2) favorable GM from both iPhones and iPhone mix (more 6 Plus' than realized), and 3) materially more Opex $ leverage through at least '16 as AAPL realizes the benefits from the recent iPhone 6 and iWatch investment cycles," Baruah explained. The June quarter iPhone sales are tracking ahead of the consensus expectations, as well as the unit guidance. "Additionally, we continue to believe that the mix of iPhone 6 Plus' remains materially stronger. Accordingly, we believe AAPL is driving to material Jun Q EPS upside," the Brean Capital report said. Given the current low consensus projections, the analyst believes that the company could generate unit upside of 10-15 percent versus the Street in 2016 and 2017, along with 50-100bps gross margin upside, given the March quarter results. In addition, the analyst believes that Apple would be able to realize significant operating leverage from the launch of the iPhone 6 and iWatch. "We now expect AAPL can ramp back down and realize operating leverage for both the iPhone 6 and the iWatch," Baruah added.