Stifel Cuts Apple iPhone Estimates, Maintains Buy On 5x EV/EBITDA Multiple

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  • Shares of Apple Inc. AAPL were volatile in 2015, and are down 9 percent so far this year.
  • Stifel’s Aaron C. Rakers maintained a Buy rating for the company, while reducing the price target from $140 to $120.
  • Difficult global economic conditions, continued forex headwinds and economic softness in Greater China are expected to restrict Apple’s F2Q16 performance, Rakers stated.

Apple reported in-line F1Q16 results, but guided to a weak second quarter. The company shipped 74.8 million iPhones in the first quarter with ASP at $691. The company’s iPhone sell-thru, which is reflective of a 3.3 million sequential channel inventory increase, declined 4 percent y/y, analyst Aaron Rakers pointed out.

The company indicated a “low-50M unit ship figure for F2Q16,” while mentioning that it expects F2Q16 to be the most challenged quarter in terms of y/y growth in F2016. Difficult global economic conditions, forex headwinds and economic softness in Greater China are the major risk areas facing Apple, Rakers noted.

The EPS estimates for F2016 and F2017 have been reduced from $9.33 to $8.87 and from $10.75 to $9.71, respectively.

Rakers mentioned that Apple exited F1Q16 with nearly 40 percent of its pre-iPhone 6/6+ installed base upgraded as compared to 31 percent at the end of F4Q15. The company’s iPhone shipments in Mainland China grew 18 percent y/y, versus a 128 percent y/y increase in F4Q15.

Apple reported F1Q16 gross margins of 40.1 percent, attributing the strength to a favorable commodity cost environment and product mix shift to iPhone, especially high priced units. The company has guided to F2Q16 gross margins of 39-39.5 percent.

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Posted In: Analyst ColorLong IdeasPrice TargetReiterationAnalyst RatingsTrading IdeasAaron C. RakersStifel
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