Wells Fargo Reiterates Outperform Rating on Apple on Revenue/EPS Forecast

In a report published Tuesday, Wells Fargo analyst Maynard Um reiterated an Outperform rating on Apple AAPL.

In the report, Wells Fargo noted, “We forecast revenue/EPS of $35.4B/$7.35. We forecast gross margin of 36.7%, but believe Apple could see a potential gross margin benefit in the quarter by upwards of 150bps ($0.41 in EPS, all else equal) from the recognition of a net deferred gain associated with cash flow hedges, as deferred gains are typically recognized in the same period that the related revenue is recognized. Additionally, Apple should also see less pressure from warranty accruals, which were impacted last quarter by the one-time warranty extension ‘catch up' accrual in China (negatively impacted gross margin by 100bps), as well as a potential decrease in deferred margin on component sales (a gross margin benefit). See our March 2013 10-Q/K PictureBook for more detail. We see Apple as a gross margin story driven by better economies of scale in the iPhone 5S cycle (every 100bps in gross margin equates to $0.28 in EPS) with the potential to be a revenue story depending on the price point and distribution of a purpose-built low end iPhone (better margin than the current ‘low end' iPhone 4). We expect Apple to guide below the Street (typical), though think this is now widely anticipated. We reiterate our Outperform rating.”

Apple closed on Monday at $426.31.