$150 Vs. $89: Apple's Bull And Bear Case Scenarios

Apple Inc. AAPL is scheduled to report its FY16 2Q results on Monday, April 25. Pacific Crest’s Andy Hargreaves maintained an Overweight rating for the company, with a price target of $127. The analyst expects Apple to report weak FQ2 results, but said that the looming iPhone 7 cycle may limit negative reaction to near-term results.

Supply and demand checks continue to suggest that iPhone unit volumes may be under pressure, analyst Andy Hargreaves said. The FQ2 iPhone estimate is at 47.5 million units, below the consensus expectation of 50 million units. Consequently, the FQ2 revenue and EPS estimates are at $50.0 billion and $1.88, respectively, below the Street expectations of $52.2 billion and $2.00.

FQ3 Estimates

Hargreaves believes that the current FQ3 expectations for iPhone units may be slightly high. The estimate is at 41.8 million units, below the consensus expectation of 44 million units.

Negative Reaction Limited

Apple’s shares are relatively attractively valued, and “the likelihood for growth in the iPhone 7 cycle could limit meaningful downside in the shares from current levels,” the analyst commented.

Bull Case

Hargreaves mentioned the bull case for Apple shares as:

• Share price at $150.
• iPhone units rebound more sharply than expected in the iPhone 7 cycle.
• Apple Watch demand higher than the PacCrest estimate.
• New iPad SKU drives modest upside to the PacCrest estimates.
• TV service launches and improves sentiment.

Bear Case

The analyst mentioned the bear case for Apple shares as:

• Share price at $89.
• Lower replacement rates result in a steeper-than-expected decline in iPhone units through F2016.
• Android regains share in emerging markets.
• Gross margin contraction due to iPhone mix shift.