From a note to clients by analyst T. Michael Walkley that landed on my desktop Thursday:
Ahead of Apple’s earnings report on Tuesday, July 27, after the market close, we are increasing our estimates based on strong demand across the company’s products. Apple continues to demonstrate the strength of its product ecosystem, and we believe consensus estimates will prove conservative for Q3 results and Q4 guidance should Apple return to providing guidance.
Apple is well-positioned to continue to benefit from the 5G upgrade cycle, and we anticipate strong overall growth trends as 5G smartphones ramp and its installed base expands with higher-margins services revenue. Apple’s ecosystem approach, including an installed base that exceeds 1.65B devices globally and now over 1B iPhone users, should continue to generate strong services revenue.
Longer term, we expect the higher-margin services revenue growth to outpace total company growth and drive gross margin expansion. With $83B in net cash, Apple has a strong balance sheet to continue to invest and support long- term growth. With the 5G upgrade cycle likely a benefit through at least C2022, other hardware categories growing double-digits, and continued mix shift toward high-margin services, we believe the share price remains compelling for longer-term investors.
Maintains Buy rating, raises target to $175 from $165.
My take: Dusting off the spreadsheet.