Apple Downside 'Limited,' PacCrest's Hargreaves Says

Apple Inc. AAPL will announce its third quarter financial results next Tuesday after the market closes. In a recent report, Pacific Crest analysts Andy Hargreaves and Evan Wingren said results should be good, while downside appears to be limited by iOS client loyalty despite risky first quarter iPhone estimates.

They reiterate a Sector Weight rating and $139 12-month fair value on the stock.

The analysts expect strong third quarter results and fourth quarter guidance. They are modeling sales of 51.6 million iPhones over the third quarter, considerably above the sell-side consensus of 47 million units. Same as Oppenheimer, PacCrest expects this to drive revenue, gross margins and earnings.

Related Link: Oppenheimer Says Apple Quarter Will Be Robust, Fears Are 'Overblown'

The firm is projecting earnings of $1.96 per share on revenue of $53.6 billion and a 39.9 percent gross margin. These estimates also stand well above the Street’s consensus of EPS of $1.79 on sales of $49.092 billion. However, the analysts believe buy-side expectations comfortably surpass the sell-side consensus, and are pretty much in line with PacCrest’s estimates.

The analysts highlight that the upcoming report is “unlikely to add clarity to the critical December quarter.” They explain that, “Perception of FQ1 (Dec.) iPhone units is likely to be the biggest driver of AAPL in the coming months. If FQ1 iPhone units are flat or up, AAPL is likely to move higher. If units are down materially, the stock is likely to be stagnant or decline.”

Finally, the Apple Watch. They think demand has slowed down considerably, despite strong initial sales. This trend could “put estimates at risk beyond Q4.”