Evercore: Five levers that could lift Apple above flat iPhone sales

From a note to clients by analyst Amit Daryanani that landed on my desktop Sunday:

ALL YOU NEED TO KNOW: Apple will host its annual iPhone event next week (9/10). We do not anticipate any major surprises from the new iPhones with upgrades expected around processor/camera improvements. While the new features may not offer a compelling reason to upgrade, Apple has had success with recent trade- in/financing programs that should support ~flat iPhone revenue in FY20. We think iPhone pricing for the new and n-1 gen phones will be crucial and price elasticity has been a successful lever for the company in the last few quarters. Also, Apple may use the event to announce details (pricing, launch date) around its upcoming services offerings (TV+, Arcade, etc.)…

EVR AAPL Thesis: While we understand iPhone units (and sales) will remain muted through FY20 (5G launch), the narrative has and continues to shift towards services and a higher mix of recurring revenue for AAPL. Key levers for upside include:

    • a) services growing double-digits with potential acceleration given new revenue streams,
    • b) gross margins inflecting higher for the remainder of the year given easing commodity costs and better leverage,
    • c) cap allocation enables 2-4% share reduction, and
    • d) non iPhone hardware sales inflect higher and have better margins.

Maintains Outperform rating and $238 price target. 

My take: Daryanani’s note is the first I’ve read in some time that hasn’t mentioned the impact of the trade war on Apple. Could Wall Street have already baked the tariffs into Apple’s share price?

15 Comments

  1. Kirk Burgess said:

    “D) non iPhone hardware sales inflect higher and have better margins.”

    The above statement on the face of it is either very poorly worded or simply incorrect. iPad/Mac/Watch Margins are far below iPhone margins.

    0
    September 9, 2019
  2. Gregg Thurman said:

    “Could Wall Street have already baked the tariffs into Apple’s share price?”

    If so WS is a very bad cook.

    0
    September 9, 2019
  3. John Konopka said:

    Any idea what the actual tariffs would be on the iPhone? Clearly it is not based on MSRP. Is it just the value added by the assembly work done in China? Any idea how this works?

    0
    September 9, 2019
    • Kirk Burgess said:

      @John Whenever anything is imported commercially it carries a declaration form which stipulates the value of the goods in the shipment. This is usually referred to as the “landed cost”. It is best described as the cost based value.

      0
      September 9, 2019

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