Citi Sees 20% Increase In Apple's Capital Returns Program During April

With expectations of a 15 percent year-over-year decline in iPhone units in the March quarter, investor focus continues to be on whether Apple Inc. AAPL would be able to grow iPhone units once again.

Citi’s Jim Suva maintained a Buy rating on the company, with a price target of $130.

iPhone Units Will Grow Again

Suva believes the company would be able to grow iPhone units from the September quarter, driven by the upcoming launch of iPhone 7, as well as expansion into emerging markets, with Apple growing its TAM with the launch of iPhone SE at $400.

Related Link: Brean Takes A Bite Out Of Apple: iPhone Shipments Might Be Too Optimistic

The analyst believes “2016 will be a year where Apple pulls together the fabric of this ecosystem that expands its total available market (TAM) including emerging markets.”

However, iPhone comps are likely to become very tough over the next few quarters, with consensus expectations of 3 percent year-on-year unit decline in the June quarter, followed by growth of 1-3 percent in the September and December quarters.

“The iPhone emerging market potential is substantial and Apple's pricing strategy to reduce the starting price point of iPhone SE to US$399 is clearly intended to gain more share in the emerging markets,” Suva stated.

Capital Returns

The analyst expects Apple’s capital returns program to see a 20 percent increase in April, from $200,000 to $240,000, comprising share buybacks and dividends.

This would represent 70 percent of the estimated free cash flow generated.