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Are Apple iPhone Estimates Too High?

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Are Apple iPhone Estimates Too High?
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  • Apple Inc. (NASDAQ: AAPL) shares have risen 7.24 percent over the past five trading days, reaching a high of $119.122 on October 23.
  • Andy Hargreaves of Pacific Crest Securities has maintained a Sector Weight rating on the company.
  • Although Hargreaves believes that the long-term risk-reward of the stock is favorable, the consensus expectations for iPhone units in 1H:F2016 might be too high

Analyst Andy Hargreaves believes that “AAPL's valuation and the stickiness of iPhone customers should protect long-term cash flow and support stock appreciation as investor focus shifts beyond the iPhone 6s cycle.”

For FQ1, the Pacific Crest estimate for gross margin is 39-40 percent, while the consensus forecast is 39.8 percent. However, Hargreaves believes that any concerns surrounding near-term iPhone units are mostly priced into the stock.

Related Link: Apple's Q4 Has Upside, Field Triangulation Shows

“If gross margins are holding, longer-term investors can feel confident in continuing to own AAPL, almost regardless of iPhone units. Conversely, if gross margins are pressured, it could undermine longer-term expectations for profit stability,” the Pacific Crest report said.

The revenue estimate for FQ1 is $67 billion-$70 billion, while the consensus expectation is for $76.4 billion. Since the company does not provide unit guidance, Hargreaves believes that investors will need to “tease out other categories, including Apple Watch,” which is expected to see a significant quarter-on-quarter unit volume increase due to an expanding channel and seasonal sales.

For FQ4, the iPhone unit estimate is $7.8 million, while the consensus forecast is for $48 million.

“Investors will view this as an indicator of run-rate demand headed into the 6 cycle which, along with FQ1 revenue guidance, will help hone iPhone estimates going forward,” the report added.

Latest Ratings for AAPL

DateFirmActionFromTo
Jul 2017Morgan StanleyMaintainsOverweight
Jun 2017MizuhoDowngradesBuyNeutral
Jun 2017Pacific CrestDowngradesOverweightSector Weight

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Andy Hargreaves iPhone Pacific Crest Securities VetrAnalyst Color Reiteration Analyst Ratings Tech Best of Benzinga

 

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