Apple's Near-Term iPhone SE Strength Offsets 6s/6s Plus Weakness

Apple Inc. AAPL is scheduled to report its F3Q16 results on July 26. Credit Suisse’s Kulbinder Garcha maintained an Outperform rating on the company, with a price target of $150, saying that Apple should be able to sustain “elevated levels” of earnings and FCF in the long term.

The Credit Suisse revenue and EPS estimates for F3Q16 are $41.2bn and $1.39, versus consensus expectations of $42.3bn and $1.38, respectively. “Given high retention rates, a superior ecosystem, and multi product compute advantage, we believe such elevated levels of earnings and FCF of ~$65bn should be sustainable long term,” analyst Kulbinder Garcha wrote.

iPhone SE Strength Offsetting 6s/6s Plus Weakness

Supply chain checks indicate that near-term iPhone SE strength would likely offset softness in the remaining iPhone portfolio. Garcha projected iPhone SE units of 10mn for the quarter. He expects total iPhone units to come in at 40.7mn, representing a 14.4 percent y/y decline and a 20.5 percent sequential decline. Results are likely to have been impacted by an inventory drawdown.

The unit estimate for 2016 is at 207mn, representing a 10.8 percent y/y decline. The iPhone cycle is likely to remain subdued for the next few quarters, the analyst mentioned. He expects the iPhone business to recover slightly to 215mn in 2017, and accelerate to 250mn in 2018.

“Specifically, we believe installed base growth, which has grown 80% since 2013, should drive unit growth beginning with the iPhone 7,” Garcha added.

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