Pacific Crest: We're Upgrading Apple, More Growth Is Coming Next Year

• Apple Inc. AAPL shares are down 14 percent in the last six months, even after peaking at $132.07 on July 20.
• Pacific Crest’s Andy Hargreaves upgraded the rating on the company from Sector Weight to Overweight, while maintaining the price target at $142.
• Although the near-term concerns remain, these are offset by longer term prospects driven by the company’s share gains and pricing power, Hargreaves mentioned.

Apple reported its F4Q iPhone sales in-line with expectations, at 48 million units. The company was able to record total revenue for the quarter at $51.5 billion, marginally beating expectations, with higher-than-anticipated iPhone ASPs offsetting disappointing revenue generated by Mac and other products, analyst Andy Hargreaves said.

Apple reported its EPS at $1.95, ahead of Pacific Crest’s estimate of $1.92, due to better gross margins. March is expected to be the low point for growth, as indicated by the expectations for iPhone 6s. Hargreaves added, however, that revenue and EPS may reaccelerate beyond March and there is “a very strong likelihood for acceleration through the iPhone 7 cycle.”

Apple's shares are down about 12 percent since early July and more than 20 percent year-to-date. Hargreaves believes that expectations of stagnant growth during the 6s cycle is “largely priced in.”

The iPhone unit estimate for FQ1 has been raised from 66.9 million to 75.9 million. The EPS estimate for FY16 has been raised from $9.25 to $9.50. The EPS estimate for FY17 is set to $10.30, reflecting the expectation of 9 percent unit growth in the iPhone 7 cycle.

In the report Pacific Crest noted, “We see Apple as a sustained share gainer in that market with pricing that is likely to remain protected by Apple's brand, ecosystem and the extraordinary utility of the iPhone. This should support further unit growth and profit expansion.”