Cowen Maintains Apple's Price Target At $140 Despite Being 'A Little Concerned' About Watch Margins - Apple (NASDAQ:AAPL)

In a report published Monday, Cowen analyst Timothy Arcurl maintained an Outperform rating on shares of

Apple Inc.

AAPL

with an unchanged $140 price target ahead of the company's third quarter print. Apple is scheduled to report its third quarter results after Tuesday's market close.

Estimize, the crowd-sourced earnings and economic rating platform is expecting the company to earn $1.86 per share in the quarter on revenue of $49.346 billion. This compares to the Wall Street consensus estimate calling for Apple to earn $1.79 per share on revenue of $49.092 billion. Arcuri offered his own second quarter estimates and is expecting Apple to earn around $0.10 or "maybe a little more" per share to the Street's estimate (he is modeling $1.88 per share) on potentially up to $2 billion or revenue upside (he is modeling $51.0 billion). The analyst is also expecting Apple to potentially report a "slight upside" to the Street's 39.5 percent gross margin expectation. Arcuri is also expecting Apple to report 50 million iPhone units were shipped in the quarter and three million Watch sales which will prove to be "immaterial" to results. Looking forward to the fourth quarter, the analyst is currently modeling revenue/gross margin/earnings per share of $53.7 billion/39.0 percent/$2.00, or $2.5 billion above Street revenue estimates and eight percent above the Street's earnings per share estimate. However, despite the above Street view, Arcuri noted several concerning trends. First, the analyst is "not uber-optimistic" on the iPhone's S-cycle, although his 49 million unit estimate may seem a "little light." In addition, his field work on the iPhone 6S/6S+ may suggest a 90 million Phase 1 build, which is down from the 100 million Phase 1 build for the iPhone 6/6+ which is "fueling our concerns" on 2016 growth. Arcuri also suggested that Apple may guide its fourth quarter Watch sales to seven million units. This makes him "a little concerned that it could be a drag on gross margin – or at least prevent upside." Finally, Apple's iPad sales should "remain soft" with units flat quarter over quarter or "more likely down again." Bottom line, the analyst maintains a view that the stock "remains biased slightly higher but has generally entered a holding pattern."

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