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Barclays Weighs In On Apple's Street Beat

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Barclays Weighs In On Apple's Street Beat

Barclays said Apple Inc. (NASDAQ: AAPL) shares should move higher in the near term following its better-than-expected quarterly results, which suggested iPhone unit trends and consolidated gross margin were better than feared.

The Quarter, In Review

Apple's third-quarter EPS/revenue came in at $1.42/$42.4 billion versus Barclays' estimate of $1.34/$41.4 billion and the Street's view of $1.38/$$42.1 billion. Gross margin was 38 percent versus Barclays' estimate of 37.5 percent. iPhone figures were good enough, and iPad units were much better than anticipated thanks to the Pro version.

Related Link: History Says Odds Are Apple Shares Will Be Higher In 30 Days Than They Will Be Today

"The model is not out of the woods with respect to structural questions related to global smartphone saturation and elongating replacement cycles, but overall results and outlook should be enough to get consensus estimates," analyst Mark Moskowitz wrote in a note.

Apple noted that the $3.6 billion in channel inventory drawdown occurred in June quarter; this could set the stage for improving unit trends. Apple now holds September quarter revenue guidance of $45.5 billion–$47.5 billion and implied EPS of $1.62 supports this view. The consensus had been $45.7 billion and $1.60.

The analyst raised his current year EPS estimate to $8.27 from $8.14 and next year EPS view to $8.38 from $8.32, while the Street expects EPS of $8.21 for the current year and $8.87 for the next.

iPhone

On the iPhone front, Apple expects seasonal quarter-over-quarter growth in September quarter iPhone units, signaling a potential inflection point. ASPs also are expected to improve after the channel drawdown.

"The composition of switchers and enterprise customers underpinning iPhone units seems to be increasing, which could prop-up the IP7 growth trajectory," Moskowitz continued.

Acquisitions On The Horizon?

The analyst also highlighted that Apple may need to use its cash to make a more substantial acquisition to construct an incremental growth vector.

"On this point, we continue to think enterprise cloud services could be additive to the model over the next 10–15 years as the market leaders are still taking shape," Moskowitz added.

Analyst's Conclusions

Moskowitz maintains his Overweight rating and $115 price target on the stock, which were up 6.57 percent to $103.02 at time of writing. Based on Tuesday's close, the price target of $115 represents a potential upside of 19 percent.

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Latest Ratings for AAPL

DateFirmActionFromTo
Nov 2019Initiates Coverage OnOutperform
Oct 2019MaintainsOutperform
Oct 2019MaintainsBuy

View More Analyst Ratings for AAPL
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