Cowen: Apple Still Worth $125

• Apple Inc. AAPL shares have lost 20 percent over the last six months.
• Cowen’s Timothy Arcuri maintained a Market Perform rating for the company, with a price target of $125.
• Q1 expectations have been reset, builds have bottomed and the supply chain has normalized, Arcuri stated.

Analyst Timothy Arcuri projected revenues and EPS of ~$77.6B and $3.30 for F1Q16 on iPhone unit sell-in of 73MM. This is at the high-end of the revenue guidance. The analyst also estimated iPad units of 19MM and Watch units of ~10MM. “If our Watch number proves to be a few MM too high - possible - AAPL should still be able to do ~$76MM in revenue and meet Street EPS.”

Apple’s GM could be positively impacted by its decision to keep entry level version at 16GB and “a little more skew to 6S+ on the builds.” Apple has faced currency headwinds through the year and FQ1:16 guidance reflected 700bps of y/y currency headwind. The Cowen report noted, “Our analysis indicates that the FX effect was actually 150bps better than what was assumed in guide.”

The analyst projected FQ2:16 revenues and EPS of $54.2B and $2.15, compared to Street expectations of $55.8B and $2.15. He expects iPhone units to reach 47MM, given slower demand in developed markets and China.

“The good news is that sell side has been cutting numbers for months and investors are already expecting mid 40MM's for several weeks now,” Arcuri wrote. He added that Apple’s growth in China has become increasingly dependent on macro factors and growth of the Chinese middle class, rather than share gain, which “has relatively little headroom.”