Street Expectations For Apple Are 'Low' Through 2017, Says Brean's Baruah

• Apple Inc. AAPL shares have declined 20.68 percent over the past six months, dropping to a low of $96.30 on January 21.
• Brean Capital’s Ananda Baruah has maintained a Buy rating on the company, with a price target of $170.
• Baruah believes that the consensus EPS expectation are low through 2017 due to potentially higher unit shipments following the 4 inch phone launch and other factors.

Analyst Ananda Baruah explained that the consensus EPS expectations through 2017 could prove to be low “rom 1) potentially greater phone ships as Street remains unconvicted on the introduction of a new 4 inch phone, 2) ongoing favorable GM from both iPhones and iPhone mix and 3) greater Opex $ leverage through at least ’16.”

Baruah also believes that a reduction in iPhone builds at this point could prolong the time that improving data points would take to act as a catalysts, although long term, Apple continues to be an attractively valued asset.

Baruah expects Apple to report EPS of more than $3.35 for the December quarter, with gross margin of 41 percent, while guiding to gross margin of 39-40 percent.

For CY16, the shipment estimate has been lowered from 230 million to 210-220 million, which implies a 5-10 percent decline, with any new reduction expected to be across the iPhone 6s and the upcoming 4-inch model.

“While we’re not sure why the new 4 inch phone builds would be reduced so much ahead of launch, our hunch is that given AAPL has been looking to reduce inventories that at this point they’d rather have too little product as opposed to too much,” Baruah noted.