Apple Inc. (AAPL) Ecosystem Is Solid And Has Room To Grow: Barclays

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In a recent report by Barclays, their analysts share the experience of meeting with Apple Inc. (NASDAQ:AAPL) executives at the company’s headquarters in Cupertino, CA, including Phil Schiller (SVP of Worldwide Marketing) and Peter Oppenheimer (CFO). As usual, Apple Inc. (NASDAQ:AAPL) did not make any pronouncements about new products or guidance.

Apple Inc. (AAPL) Ecosystem Is Solid And Has Room To Grow: Barclays

Despite recent controversy over the stock price decline and its growing competition, the analysts still believe the company is very optimistic about the general product pipeline and its market position. Key topics discussed between Apple Inc. (NASDAQ:AAPL) employees and Barclays analysts included the use of cash, prospects for the iPhone, the market potential for the iPad, and new markets.

The analysts of the firm still believe Apple Inc. (NASDAQ:AAPL) will introduce a lower cost phone based on the iPhone 5 and an ‘iPhone 5S’ in mid-2013. They also still believe the most important advances for the iPhone in 2013 will actually be improvements to iOS and its services, which can expand the market for Apple. However, analysts from Barclays do believe that a 5” phablet is needed – and Apple Inc. (NASDAQ:AAPL) should address this need by C1Q14. They believe that Apple’s ecosystem is solid – and has room to grow in both existing and new devices.

Analysts from Barclays are taking this opportunity to adjust their estimates for Apple Inc. (NASDAQ:AAPL) lower given the view that new products are more second half loaded in C2H13 – and the first half of C13 is more competitive. This adjustment is NOT a result of the meeting – but something the analysts have been considering for days given extensive checks with their teams. Barclays now estimate fiscal 2Q EPS of $9.80, based on 6% y/y revenue growth to $41.63 billion and gross margin of 38.1%. They now estimate fiscal 3Q EPS of $9.04 based on 11% y/y revenue growth to $38.92 billion and gross margin of 38.0%. For FY13, analysts from Barclays estimate EPS of $43.75 (consensus = $44.81) based on 16% y/y revenue growth to $181.49 billion (consensus= $182.99 billion) with gross margin of 38.4%.

Given lower estimates, Barclays price target for Apple Inc. (NASDAQ:AAPL) is now $530 based on 11x their reduced FY14 EPS estimate of $48.92.

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