Analyst: Think beyond the Apple ‘noise’

RBC’s bull case for Apple is intact, says Amit Daryanani.

From a note to clients that landed in my inbox Sunday:

We think AAPL ends-up printing upside to Dec-qtr (ahead of their guided range) and March-qtr guide, while tepid, will be nowhere near the noise/fear levels are suggesting. We think investors are ignoring ASP tailwinds that could more than offset concerns around units and enable an inline guide. Simplistically, AAPL’s EPS/FCF (and stock) should continue to work higher driven by a) higher iPhone ASP, b) Potential for gross-margin tailwinds (specially in H2) and c) Tax reform benefits. We are adjusting our models – by raising Dec-qtr estimates and lowering March-qtr to reflect our thinking that channel fill could have occurred sooner vs. our expectations. Net/Net: Our positive bias on AAPL remains intact and is driven by our expectation that AAPL could achieve $14+ EPS by FY19 and stock works its way to $200+ over the next 6-12 months driven by ASP’s enabling better revenues, F/X and Mix (services+memory) bolstering gross-margins and tax-reform coupled with buybacks enhancing their EPS profile.

Reiterates Outperform rating and $200 price target.

My take: This note places Daryanani squarely in the camp of the analysts who don’t buy the noise and fear surrounding Apple these last few weeks.

8 Comments

  1. Stephen Young said:

    I find it funny about next quarter hand wringing when the LOW estimate, per yahoo finance, for March Q2 quarter is 14.4% revenue and 20.5% earnings growth. If Apple guides below this for Q2 it will be lookout below no matter what Q1 looks like. Fingers crossed on a Great Q1 earnings report and Q2 guidance.

    1
    January 28, 2018
    • Scott Davis said:

      The current narrative almost make Q1 results irrelevant. Although, this will likely be AAPL’s largest quarterly revenue ever, and consequently the largest quarterly revenue ever put up by an American company in history, it won’t matter. It’s all about the guidance for Q2. If guidance is tepid, then nothing else matters to the street, not services growth, not repatriation, not stock buybacks. This will affect traders and the options market in the short term, but not those in for the long haul. Stock buybacks should create a reasonable floor to minimize the short-term downside damage, if this plays out.
      – Dr. Scott

      3
      January 28, 2018
      • Gregg Thurman said:

        What do you consider “tepid”?

        Historically March quarter revenue drops 26% from December levels. Even if this Match quarter prints a QoQ decline of that magnitude, it’s results will result in YoY growth in excess of 14%. FOURTEEN PERCENT!!!

        Any other S&P 500 firm, or DOW component, would die for that kind of growth. For a firm the size of Apple 14% YoY growth is unheard of.

        2
        January 28, 2018
  2. Fred Stein said:

    Agree with Stephen and Scott.

    What do people mean by tepid? Q1 FY18 will be record-breaking per consensus. Is any thing less than that level of performance, then tepid?

    Far more important are the positive items Philip has provided. India, Tim Cook’s new growth geo, has a nicely growing economy. Services and the category ‘other’ are both doing very well and will continue to grow. Katy H. tells us iPhones sales are regaining strength in China.

    If the market over-reacts to Apple’s guidance, Apple will buy back a tiny % more shares for the same money. That would be a tiny positive long term, not a negative.

    0
    January 28, 2018
  3. Gregg Thurman said:

    Anybody talking weak, tepid for the March quarter has a perception problem.

    0
    January 28, 2018

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