BofA Still Neutral On Apple, But Boosts Mac And Watch Estimates

• Shares of Apple, Inc. AAPL have decline 11.87 percent over the last six months, hitting a low of $103.12 on August 24.
• Wamsi Mohan of Bank of America Merrill Lynch has reiterated a Neutral rating on the company, with a price objective of $130.
• Mohan believes that “one time dynamics” of channel inventory upside, the timing of the end of the quarter and the benefits from the iPhone annual upgrade plan could lead to additional headwinds going into the March quarter.

According to the Bank of America report, “At the end of F3Q15, Apple channel inventory stood at the low end of 5-7 weeks.”

Although the company had obviously built inventory in preparation for the launch of its new iPhones, the new annual upgrade plan has led to incremental demand, which Mohan estimates at “a few million units in the Dec quarter.”

Given the first weekend sales and base iPhone unit growth, the iPhone unit estimate has been raised from 72 million to 77 million for the December quarter. Mohan expects Apple to sell 47 million units in the September quarter.

However, iPad sales are expected to remain weak in the near term and the iPad unit estimate for the September quarter has been lowered. At the same time, 10 percent of iPad sales are expected to the iPad Pro over the next year, while the blended ASP is expected to rise.

The Mac unit sales estimate has been raised for the September quarter. “Sales of Apple Watch should benefit from increased distribution, and we increase Dec units by 2mn,” the report mentioned.

Apple has decreased its iPHone channel inventory during F3Q15 to the low end of the target range of five to seven weeks, while iPad channel inventory has been lowered to within the same target range.

“In our opinion, channel inventory can help increase iPhone sales by 3-4mn units in the Sep quarter given the increase ahead of the 6S/6S+ launch,” Mohan added.