Brean: Apple Supply Fears Aren't 'Draconian,' Stock Worth $170

• Shares of Apple Inc. AAPL have declined 21.35 percent over the past six months, dropping to a low of $96.45 on January 7.
• Brean Capital’s Ananda Baruah has maintained a Buy rating on the company, with a price target of $170.
• Baruah believes that the recent “noise” from the company’s supply chain might have some merit, although the implications were unlikely to be as “draconian” as anticipated.

Analyst Ananda Baruah expressed positivity regarding the outlook for the stock through 2016, while mentioning, however, that “data points need to stabilize and that the Street requires conviction on our belief that a 4-inch phone is a done deal.”

Baruah estimated that Apple’s unit shipments for CY16 would be flat year on year at about 230 million iPhone units, although the consensus forecast was expected at a decline of 5-10 percent.

According to the Brean Capital report, unit shipments for the December and March quarter are likely to remain intact, while the recent reductions were for the June to December quarter, given the weaker demand for the iPhone 6s and 6s+ and to bring down inventories.

Baruah expressed continued confidence in the potential for gross margin upside, expecting the company to generate EPS of more than $3.35 in the December quarter, with gross margin of 41 percent.

“We continue to believe that Street EPS is materially low through ’17 from 1) potentially greater phone ships, 2) ongoing favorable GM from both iPhones and iPhone mix and 3) greater Opex $ leverage through at least ’16,” the report added.