Evercore: Apple’s Q1 guidance now looks ‘extremely conservative’

Analyst Amit Daryanani expects Apple’s gross margin to increase.

ALL YOU NEED TO KNOW: We think overall EPS season should end-up being a mixed bag, with positive trends from AAPL & supply chain companies though we think enterprise trends remain muted and could be a source of disappointment. Fundamentally, our checks showed positive trends across – AAPL ecosystem (multiple ISI surveys were positive on wearables, watch and iPhone), PC enterprise refresh remains robust, hyperscale demand is inflecting higher and mil/aero remains on the upside. Conversely, we saw negative trends across – HVOR/Commercial vehicle markets, servers/storage and broader legacy enterprise markets. Net/Net: We see high probability of upside bias at – AAPL, APH, and CDW (though at CDW we think CY20 guide will be prudently conservative).

AAPL – iPhone + AirPods = Upside? Apple looks well positioned to report a strong Dec-qtr driven by robust demand for the iPhone 11 and AirPods. Notably, the guide looks extremely conservative as it implies only +36% q/q revenue growth (only ~200bps better vs. Dec- 18 – when AAPL negatively pre’d). Our survey work indicates a strong holiday season for Airpods and iPhone and we expect gross margins to expand by around 30bps, primarily driven by better mix benefits coupled with lower NAND prices (IDC estimates NAND prices fell 40% in CQ4) – though we note NAND and memory broadly is fast inflecting.

Maintains Outperform rating and $360 price target. 

My take: Apple’s stock popped in September when the company issued its December quarter guidance, and it has been setting new highs ever since. A beat would be icing on the cake.

See also: Evercore’s Amit Daryanani anticipates a trifecta of growth factors.

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