Maynard Um of Wells Fargo commented in a note on Monday thatAppleAAPL
will need to “materially beat” expectations in its upcoming first quarter results. Um expects Apple will report an earnings per share of $2.77 on revenue of $69.1 billion. This compares to the Street's estimate of an earnings per share $2.59 per share and revenue $67.3 billion. According to Um, Apple's “other categories” performance will only matter if iPhone units remain status quo and that bears will be closely watching iPhone sales, particularly iPhone 6 Plus. “With what we believe to be heightened expectations, we believe Apple would have to materially beat our FQ1 unit estimate of 67 million,” Um wrote. “Additionally, we believe our gross margin forecast of 39.6 percent (above guide of 37.5-38.5 percent due to our mix expectations) could be somewhat offset by currency.” Looking forward, the question remains if a shift to 32GB from 16GB for the low-end iPhone could drive mix shift back to the lower end or if the company keeps the current configuration. Um states that this decision could have a large impact on iPhone average selling prices and margins. Bottom line, Um expects a “strong result and outlook” from Apple, but tougher compares, lack of new large carriers to add, increasing challenges to differentiate the next cycle justifies a reiteration of a Market Perform rating but with a valuation range raised to $100 to $110 from a previous $92 to $102.
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