From a note to clients that landed in my inbox Wednesday.
- We see 3% upside to consensus EPS in FY17 – We estimate FY17 EPS at $9.31 vs. consensus at $9.01 on modestly higher revenues (mostly due to iPad and Watch). We trim our iPhone revenue estimate for FY17 by 2% to account for lower iPhone 7 units (primarily in China) and FX headwinds, partially offset by a mix shift to the iPhone 7 Plus.
- More bullish on iPhone 8; raising FY18 estimates – There is mounting evidence from the supply chain that the iPhone 8 may be a significantly more innovative device than its two predecessors, with new capabilities such as augmented reality/3D sensing. To reflect that probability, we partially bake in a stronger upgrade cycle and higher ASPs in FY18.
- Optionality from repatriation and content strategy – With $216bn in overseas cash, Apple would be the top beneficiary in our coverage of repatriation, which would likely be deployed for accelerated buybacks and potentially M&A. We think Apple could use M&A to accelerate its content strategy, consistent with the company’s increased focus on services.
Rating: Buy. Price target: $133, up from $124.