The bears continue to be the winners, at least for the first day, post Apple’s strong results and increased $200 billion capital return program. The stock has pulled back over $2 after getting back to breakeven earlier in the day. I have summarized below a dozen sell-side analysts notes who are positive on the shares. I have also summarized a half dozen analysts who are bearish on the shares which is available via this link. (Note that I own Apple shares and have sold Puts which is a bullish strategy).
Tim Arcuri at Cowen: Outperform with $135 price target
Note that Arcuri’s $135 price target is only a few dollars higher than the current stock price but he has an Outperform rating. If there was a time to change either the rating or price target he missed a great opportunity.
Arcuri slightly increased his fiscal 2015 EPS estimate from $9.21 to $9.24 and kept his fiscal 2016 at $9.85. Arcuri wrote “Although we remain bullish on the length and magnitude of the iPhone 6/6+ tail, the company is now entering a period of transition. Year over year revenue compares are clearly set to become more challenging and services (e.g. Apple Pay) must ultimately start to drive hardware sales, including Apple Watch (where our outlook remains tepid until version 2.0 is launched).”
Keith Bachman at BMO: Outperform with $145 price target (was $135)
Bachman raised his fiscal 2015 EPS forecast from $8.66 to $8.94 and fiscal 2016 from $9.28 to $9.65. He also increased his free cash flow estimates to $63 and $64.9 billion in fiscal 2015 and 2016, respectively.
Responding to Apple’s comments that the Watch’s gross margin will be below the company’s average in the June quarter Bachman responded “we do not believe the Watch will be dilutive on an ongoing basis, particularly as we think consumers will likely buy more than one band. We believe the band gross margins are substantially higher than Apple’s weighted average margins.”
Chris Caso at Susquehanna: Positive with $155 price target (was $150)
Caso increased his fiscal 2015 EPS estimate from $8.51 to $8.82 and fiscal 2016 from $9.40 to $9.58. His price target is based on a 15.5x PE multiple on calendar 2016 EPS.
Caso wrote “Looking forward, we have two areas of possible concern. We think consensus may be slightly aggressive for September, given the tough year over year compares from last year's iPhone launch. We also expect that if the dollar remains strong into the second half of this year, the revenue and margin headwind experienced in the first half would likely become a unit headwind in the second half due to the necessity for more comprehensive price increases in Euro and Yen markets. These concerns notwithstanding, we think fiscal 2016 consensus estimates appear more reasonable, and the company is clearly executing well, and these factors allow us to remain positive on the stock at current levels.”
Kulbinder Garcha at Credit Suisse: Outperform with $145 price target
Garcha wrote “Given high retention rates, a superior ecosystem, and multi product compute advantage, we believe such elevated levels of earnings and free cash flow of $72 billion per annum should be sustainable long term.” His fiscal 2015 EPS is $9.03 and fiscal 2016 is $10.47.
Garcha also sees three upside levers: “Although our estimates are above consensus, our assumptions may be conservative. First, gross margins of 40% at the corporate level could prove conservative as we do not take into account leverage from increased sales nor scope for expansion as cost curves on new products improve. Second, we assume no significant impact from new products or monetization of services, such as Apple Pay, Beats, HealthKit and HomeKit. Third, our Watch estimates of 9mn units in FY15 and 28mn in FY16 could prove conservative, while our ASPs of $550 could also be conservative.”
Rod Hall at JP Morgan: Overweight with $145 price target
Hall raised his fiscal 2015 EPS estimate from $9.16 to $9.44 but lowered fiscal 2016 from $10.34 to $10.14. The higher 2015 projection is driven by slightly higher iPhone unit forecasts.
Hall wrote “Apple did not provide Apple Watch pre-order numbers, but based on its gross margin commentary we infer that the company is planning to invest heavily in the June quarter to ramp up production with a goal of supply meeting demand by June. We continue to expect earnings to outpace expectations this year driven by the Watch, iPhone replacements and other new products.”
Katy Huberty at Morgan Stanley: Overweight with $166 price target (was $160)
Huberty raised her calendar 2015 EPS from $8.66 to $9.20 with her fiscal 2016 EPS moving from $9.64 to $9.83 driven by “stable to growing iPhone units in fiscal 2016 compared to investor fears of iPhone declines.” She also believes that a “broadening portfolio of services and the Watch as drivers of a re-rating more in-line with technology platform peers (18x P/E), which drives our PT to $166 (from $160).”
She makes an interesting and point that I’d agree with that “Gross Margin guidance is even better than it appears. June quarter gross margin guidance of 38.5-39.5% is the same as the March guidance despite 1) 40 bps incremental FX headwind, 2) lower iPhone mix, and 3) lower than corporate average Watch margins in the launch quarter.”
Steve Milunovich at UBS: Buy with $150 price target
Milunovich increased his fiscal 2015 EPS estimate from $8.85 to $9.10 and fiscal 2016 from $10.20 to $10.40. His $150 price target is based on a 16.5x PE multiple on his fiscal 2015 EPS, which is a 10% discount to the market which equates to a 13.6x multiple when excluding $26 in net cash.
He projects that earnings growth should be close to 40% for the next two quarters so thinks it is premature to be concerned about the deceleration of the next product cycle.
Gene Munster at Piper Jaffray: Overweight with $162 price target (was $160)
Munster increased his fiscal 2015 EPS projection from $8.24 to $8.79 and fiscal 2016 from $8.40 to $8.59. Note that it is unusual for an analyst to have lower fiscal 2016 EPS projections and have an Outperform type rating.
Regarding the upcoming tough compares Munster wrote “The nagging question over the past year has been what happens when we comp the iPhone 6 launch? We are modeling for overall growth of 28% in the Jun-15, 11% in Sep-15, and down 1% in Dec-15. For 2016 we are modeling for 2% revenue growth. Any way you cut it, comps will get more difficult. We expect market share gains will improve these growth rates, but will still show a revenue growth slowdown. Our take on the comp question is investors (and analysts like myself), were reminded of the painful comp topic in the iPhone 5 cycle in 2013. Shares declined 44% in the 7 months after the iPhone 5 launch. We believe this dramatic drop two years ago reduces the risk of shares hitting the wall exiting the iPhone 6 cycle because most investors who have been buying shares of Apple over the past four months (stock up 22%) are aware of the upcoming comps. We believe the comps will soften the near term upside to AAPL shares, but still expect upside from current levels.”
Will Power at RW Baird: Outperform with $155 price target (was $134)
Power significantly increased his calendar 2015 EPS estimate from $8.44 to $8.98 and calendar 2016 went from $8.57 to $9.88. He wrote “With Watch ramping, a potential enhanced video product on the way and continuing strong iPhone demand, we have increased conviction in our 2015 and 2016 forecasts.”
His $155 price target is based on a 13x PE multiple on calendar 2016 EPS of $9.88 and adding $26 in net cash per share. While his net cash number is correct I think it should be adjusted for additional taxes to be paid on the overseas cash and some amount to run the company. This would drop the true net cash to a bit more than $13.
Toni Sacconaghi at Bernstein: Outperform with $142 price target
Sacconaghi raised his fiscal 2015 EPS estimatesfrom $8.80 to $9.08 and fiscal 2016 from $9.54 to $9.67. He is encouraged that an estimated 35% to 40% of iPhone buyers are new iPhone users (either switchers or first time smartphone buyers) and that it could be 50% in China but that is muted due to Apple’s dependence on one product and one geography (which I assume is China due to its growth).
Similar to his question on the conference call Sacconaghi believes Apple’s enthusiasm for the Watch is a bit muted vs. other new product launches. I’d agree that investors are disappointed that the Watch’s gross margin is less than the company average (at least for the first quarter or so) but that may be due to it being a new product and once the learning curve sets in margins should move higher.
Andrew Uerkwitz at Oppenheimer: Outperform with $155 price target
Uerkwitz increased his fiscal EPS forecast from $8.73 to $8.94 and fiscal 2015 from 9.76 to $10.37 (the highest estimate I have seen so far). He continues to believe Apple will gain share as it's in the middle of its best product cycle driven by its compelling ecosystem. But he does see slower iPhone unit growth (5% in fiscal 2016) so is using a lower multiple for his price target.
Brian White at Cantor Fitzgerald: Buy with $195 price target (from $180)
White increased his fiscal 2015 EPS from $8.72 to $8.94 and fiscal 2016 from $9.64 to $9.78. White wrote “The momentum of this iPhone cycle is notably stronger compared to those in the past, which we believe is driven by the larger screen sizes of the iPhone 6/6 Plus, combined with strength in emerging markets and the growing attraction of Apple's robust digital ecosystem. Adding to the allure of this cycle is the ramp of Apple Watch that we believe will prove to be the best selling new product in Apple's history (within first 12 months).”
Note that it seems White loves to have the highest Apple price target. I believe Daniel Ives at FBR is at $185 and surpassed White’s back on April 17.
