Sending a small signal to the Street that she finds the Apple bear case unpersuasive.
From a note to clients that landed on my desktop Thursday:
Incoming call volume on Apple is as low as we can remember over the last 5 years, which we believe stems from 4 main factors.
- First, we are at a seasonally low period in the iPhone cycle, which creates a demand information vacuum and elevates the relative impact of supply chain noise.
- Second, Apple is increasingly in the eyes of regulators, and while we believe their model is defensible, regulatory risk is likely to remain a stock overhang (we’d argue it is for Apple’s comps as well, reflected in peer multiples).
- Third, as the world slowly returns to normal, there are concerns that cyclical work and learn from home demand will decelerate at the same time Apple faces increasingly difficult comps.
- And fourth, investors fear that a more evolutionary (rather than revolutionary) iPhone s-cycle will lead to extending iPhone replacement cycles and Y/Y revenue declines next year, increasing the likelihood of negative estimate revisions in FY22.
We recognize these risks but have a more positive outlook. In the near-term, we believe the June quarter will be stronger than originally expected as iPhone and iPad builds are tracking ahead of our model, and we increase June Q revenue and EPS estimates 3-5% as a result (3).
However, we also recognize that the Apple bear case of double-digit revenue declines and EPS pressure in FY22 will not be disproven in the June quarter, making Apple’s catalyst path more back-end loaded this year.
Nevertheless, we believe that Apple can drive low-teens annual revenue growth and high-teens annual EPS growth between FY20 and FY23, which supports our 31x EV/FCF target multiple.
Maintains Overweight rating, raises price target to $162 from $161.
My take: This is the first of two bullish notes from Huberty this morning. She’s going after the Apple bears with both barrels.
Below: A sneak peek at Huberty’s Earning Smackdown number…