Technology

Apple Inc. (AAPL) PT Cut By Credit Suisse On Lower iPhone Sales

Apple iPhone faces pressure near term, but long term the picture is bright according to analysts at Credit Suisse. Credit Suisse is out with a new research report on Apple Inc. (NASDAQ:AAPL). The analysts are lowering their estimates, but retain outperform rating. Specifically, Credit Suisse lowers their EPS estimates for Apple Inc. (NASDAQ:AAPL) by 6%/7% for FY13/FY14 to $44.9/$54.0 driven principally by lower iPhone shipments. Nonetheless, they reiterate outperform rating as “we believe this is more of a reset instead of secular pressure on the business, and remain of the view that product refresh in 2HFY13 will return Apple to its growing ways.” Further details from Credit Suisse:

Apple Inc. (AAPL) PT Cut By Credit Suisse On Lower iPhone Sales

Apple Inc. (NASDAQ:AAPL) iPhone now looking for units of 30.6mn in Q2CY13 driven by three factors. For iPhone, the analysts lower their volume estimates by 11%/8% to 158mn/194mn for CY13/CY14 due to following reasons:

  1. They are factoring the likelihood of an iPhone refresh for mid-2013, which will cause a hesitancy effect on demand and cause Apple to keep the supply chain lean;
  2. Simultaneously they believe the Samsung Galaxy S4 will launch in mid-March and is likely to gain share in the high-end; and
  3. At MWC, Credit Suisse saw over 35 smartphone launches from leading OEMs year to date, of which ~70% are aimed at the high-end and ~60% have a screen size larger than iPhone 5 (of over 4”), thereby narrowing the product lead on hardware side.

Apple Inc. (NASDAQ:AAPL)’s iPhone remains a growth business in their view. They view the reduction in volume forecasts as a reset and product transition impact rather than a structural concern long term. The analysts still expect iPhone volumes to grow 16%/23% in CY13/CY14 driving revenue growth of 10%/19% in iPhone business.

They believe carrier expansion could add a further 65mn units to iPhone volumes, the timing of which is hard to predict but likelihood remains high. Second, a low-end iPhone, which is not currently assumed within their estimates, could prove meaningfully additive. Third, they believe that Apple Inc. (NASDAQ:AAPL) may have a narrower lead on the hardware than in the past, however it still retains an ecosystem advantage.

Valuation

Apple Inc. (NASDAQ:AAPL) trades on 8x Credit Suisse CY14 EPS, which the firm believes is inexpensive given 11% growth they expect CY12–CY14 and net cash/share of $145. Their new price target of $600 is based on P/E of 10x applied to taxed CY14 operating EPS of $56 and adds back on shore cash, which they believe is fair given the likelihood of higher cash distribution.

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