UBS analysts believe Apple will report good numbers for Q1, on the strength of the many factors including the China Mobile deal and the popularity of its tablets.

Apple Earnings

Apple earnings estimates

Apple Inc. (NASDAQ:AAPL) should have a solid F1Q report, perhaps beating UBS analysts’ above-consensus estimates of $58.6bn in revenue, a 37.1% gross margin, and $14.42 in EPS. They expect unit shipments of 55mn iPhones, 25mn iPads, and 4.5mn Macs. For the March quarter, analysts estimate revenue of $47.3bn, a gross margin of 37.7%, and EPS of $11.44. The carrier additions of DoCoMo and China Mobile could buffer seasonal weakness—Chinese buying intentions are up for Apple Inc. (NASDAQ:AAPL). Double-digit EPS growth is achievable this year on 8% revenue growth, a flat-to-up gross margin, and lower share count.

Model and storage mix could help AAPL margins

Consumer Intelligence Research Partners (CIRP) surveys 500 US Apple Inc. (NASDAQ:AAPL) buyers each quarter. CIRP data confirms the 5s is handily outstripping 5c demand at a 2.2-to-1 ratio. Two factors could aid the gross margin: (1) the mix shift to newer models with the iPhone 5c and 5s combined constituting 86% of iPhone purchases while the 4/4S decline, and (2) greater average phone memory, up 12% sequentially.

iPad Air popular; iPad growth could improve

The iPad Air dominated the iPad mix at a 42% share, significantly reducing the contribution of the iPad 2 and iPad with Retina Display. Moreover, the survey indicates a substantial jump in storage from a 25-28GB over the past year to 37GBs, also supporting ASP. iPad revenue rose just 3% last year due to ASP erosion. Analysts think revenue growth could improve this year despite slower unit growth of 13% on a more stable average selling price.

AAPL Valuation

UBS price target of $650 per share is based on a NTM EV/FCF multiple of 9.5x and a P/E of 14.6x, about the same as an index of large-cap tech stocks. Analysts at the research firm think Apple Inc.(NASDAQ:AAPL) deserves at least the same multiple based on its superior ROIC and positive earnings momentum. Institutional ownership could rise, and the current 15-20% P/E discount to the market might narrow. They believe new categories are required for a price breakout though.