Credit Suisse Sees Apple's Supply Chain As 'Better Than Feared'

Credit Suisse’s Kulbinder Garcha maintained an Outperform rating for Apple Inc. AAPL, with a price target of $140, saying that the Asia supply chain seems to be stabilizing.

“The CS Asia Tech Team has noted that the iPhone supply chain orders are indicating things may be better than feared,” analyst Kulbinder Garcha wrote. He believes that this improvement may be the first positive movement since late last year when the Apple iPhone supply chain cuts began.

“Near term, our Asia team and our own checks suggest that builds are stabilizing at ~40-45mn units for C1Q16,” Garcha mentioned. This supports an estimate of 50mn iPhones units for C1Q16. The estimate for 2016 has been raised from 203.0mn units to 212.5mn units.

Potential For Capital Return

The analyst believes that Apple has the potential to raise its capital return in 2016. He noted that Apple fully-taxed net cash of $75.2bn, when it launched its capital return program in 2012. The company could end the current quarter [F2Q16] with a fully taxed net cash balance of ~$85.0bn.

Garcha believes that Apple would be able to “comfortably” raise its capital return by about $10bn per year over the forthcoming couple of years.

The EPS estimates for 2016 and 2017 have been raised by 3.5 percent to $9.23 and by 1.2 percent to $10.33, respectively. The Outperform rating reflects Apple’s “high retention rates, continued installed base growth, and the optionality of a smaller 4-inch iPhone,” the analyst commented.