Apple Investors: Wait Until March For Next Big Move

• Shares of Apple Inc. AAPL have declined 11.61 percent over the last six months, from the high of $132.65 on April 27.
• Brean Capital’s Ananda Baruah has maintained a Buy rating and price target of $170 on the company.
• Baruah expects the company to witness EPS upside in the September and December quarters and the stock to return to $130 in 2H15, driven by iPhone and gross margin upside.

Analyst Ananda Baruah expects Apple to report its September and December quarter EPS at $3.00 and $3.29, respectively, ahead of the consensus forecasts, driven by iPhone units of 47 million and 72-75 million, respectively, with gross margin of 39.8 percent and 40.4 percent, respectively, also beating the consensus.

However, Baruah also believes that “the next true elongated stock “move” will be determined by what CY16 iPhone ships can look like, and the Street likely won’t have a view on that until April when AAPL reports the Mar Q.”

With regard to the EPS upside, Baruah expects the consensus beat to be driven by favorable gross margins from the iPhones, as well as the iPhone mix, along with significantly higher opex dollar leverage at least through 2016, “as AAPL realizes the benefits from the recent iPhone 6 and iWatch investment cycles.”

“We continue to believe that AAPL is exploring an incremental 10M – 20M iPhone supply chain “look ahead” for Jun Q. Said another way, we believe that AAPL is looking at the potential that its supply chain could “increase” supply in early spring by this amount if AAPL were to ask for it,” the Brean Capital report stated.

Baruah believes that there could also be potential for a new lower-end iPhone, which could either be a model with smaller but fully functional iPhone or an iPhone 6 sized model with “skinny” functionality.

“This would allow AAPL to tap into emerging market / lower functional ASP-sensitive areas of the smartphone market,” the report added.