Apple Inc. (NASDAQ:AAPL) shares have fallen 8% since the pre-announcement of Cirrus Logic, Inc. (NASDAQ:CRUS) on April 16 (vs. -2% S&P 500). In a new note issued on Friday Barclays (BCS) states that they believe it is appropriate to frame the upside/downside case for Apple Inc. (NASDAQ:AAPL) in what they term ‘a more realistic way’. Their last report came out just on Tuesday, discussing how their below-consensus estimates have downside – and 10 things management needs to do to regain confidence. However, given new information, it seems ‘appropriate to lower estimates’ according to BCS. While acknowledging that the conference call Tuesday night may not be inspiring, the analysts believe the risk/reward actually looks favorable with below consensus figures if you take a longer-term view.
Given slowing iPhones, issues in China and major product gaps, it now seems obvious to us that gross margin and EPS figures are set to come down on the Street. The recent stock price action is likely anticipating most of this. BCS calculates that Apple Inc. (NASDAQ:AAPL) can still earn over $35 a year in EPS with flat iPhone sales and the help of a bigger buyback.
In fact, a little revenue growth and gross margins of 36% (vs. consensus long-term margins of about 39%) would put it closer to $40. In this report the firm outlines 3 cases for Apple Inc. (NASDAQ:AAPL) based on very low revenue growth – with downside to $340 on 33% gross margins long term, upside to $465 with 36% gross margins long term, and a best case of $615 with the consensus 39% gross margins.
BCS March estimates are unchanged. However, their June quarter gross margin estimate is now 36.0% (was 38.0%) and their September quarter estimate is now 36.0% (was 38.7%). F3Q June EPS is forecasted to come in at $7.00 (was $9.04), with revenue of $33.85B (was $38.9B). For FY13, BCS estimates EPS of $38.84 (was $43.75) and revenue growth of $168B (was $181B). Their FY14 EPS estimate is now $39.35 vs. 48.92 previously.
For the June quarter estimates are for Apple Inc. (NASDAQ:AAPL) iPhone unit sales to decline 34% q/q to 23.0 million from 30.0 million previously. BCS estimates only a rebound in shipments in fiscal 4Q13 with iPhone units up 20% q/q to 27.6 million, down from a previous estimate of 38 million given iPhone shipment timing.
For full year FY13 iPhone unit sales will grow 7% y/y to 133.4 million (was 150.8 million). For the June quarter the analysts have adjusted their iPad estimates to account for weakness in larger iPads and a pause ahead of new products.Estimates are for total iPad unit sales (combined iPad and mini) will be flat q/q with 18.0 million units in sales for the June quarter vs. 19.0 million previously.
BCS predicts a recovery in shipments in fiscal 4Q13 with iPad units up 17% q/q to 21.1 million but below previous estimates of 25.0 million units. For FY13, Apple Inc. (NASDAQ:AAPL) will likely grow iPad units 37% y/y to 79.9 million units (was 84.9 million).
The new price target for Apple Inc. (NASDAQ:AAPL) is now $465 based on about 9x their updated FY14 operating EPS estimate of $37.87, ex-interest income plus about $110 per share in tax effected cash.