Analyst Report Sends Apple Shares Higher Monday

Shares of Apple AAPL were up 2.45 percent Monday after a bullish analyst upgrade that found strength in Apple’s supply chain and possible weakness in the Android market.

Societe Generale upgraded the stock to a “Buy” and raised its price target from $500 to $575. Apple is due to release its fiscal fourth quarter results on October 28. Societe Generale is forecasting sales of $38 billion for the year versus consensus of $36.7 billion. The company should see gross margins of 36.9 percent versus consensus of 36.8 percent, and EPS of $8.30—higher than the consensus number of $7.90.

The report notes that after conducting channel checks in Taiwan and China, iy found sharp production upticks. The two largest suppliers, Hon Hai (Foxconn) and Pegatron are up a combined 20 percent year over year with a noticeable spike in September. Since the two new iPhones were the only major smartphones to launch, strong numbers in the supply chain would indicate that demand for Apple’s new phones remains strong.

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Further, it found that the 5S was selling for nearly $1,000 on the grey market—businesses selling the phone that are not authorized by Apple.

“…anecdotal evidence is that Apple continues to struggle to meet demand for the new iPhone 5S. There continues to be shortages in many countries and initial prices on the grey market were almost $1,000. We have yet to see any evidence that demand for the 5S is slowing although demand for the 5C appears less impressive.”

Equally interesting, the note says, “Additionally, looking out further we believe we may be seeing the first signs of weakness in Android/Samsung handsets. If this proves to be correct, it bodes well for Apple which could achieve a higher share of the smartphone market.” The report went on to reference data points showing what it said may be a peak in demand for Android products.

The main loser appears to be Samsung SSNLF.  The report notes that recent independent data is showing that the number of top 10 phones held by Samsung has slipped, along with its total market share while Apple’s has risen. It cautions that the data is far from conclusive and at this point, it’s only prepared to say that a trend may be developing.

Disclosure: At the time of this writing, Tim Parker was long Apple.