Apple Inc. (AAPL) Is Cheap But Still In Need Of Momentum: UBS

Updated on

Apple Inc. (NASDAQ:AAPL) reports its third fiscal quarter results after closing bell today, and analysts at virtually every firm are issuing previews of the stock. This time it’s UBS analyst Steven Milunovich, who’s fairly bullish on the stock, although not as bullish as some. He has a Buy rating and a $500 per share price target on the stock, which he says is “inexpensive but needs momentum.”

Apple Inc. (AAPL) Is Cheap But Still In Need Of Momentum: UBS

Raising Apple estimates over consensus

In his latest research note, the analyst raised his June quarter estimates up over consensus. He estimates that today’s results will come in at $35.9 billion in revenue and $7.60 per share in earnings. He based his increased estimates on the solid iPhone activations indicated by Verizon Communications Inc. (NYSE:VZ) and solid growth in Asia.

He also noted that iPad sales are typically up in the June quarter and that Apple Inc. (NASDAQ:AAPL)’s gross margin “should at least be” between 36 and 37 percent, which was where Apple Inc. (NASDAQ:AAPL) guided for it to be. He expects that lower warranty expenses during the quarter and falling production costs will offset declines in average selling price.

Like other analysts though, he expects the company’s September guidance to be “mediocre” and is looking for new products in either September or October. He’s looking for a September guidance with $35.1 billion in revenue and $7.63 per share in earnings. He did not include new products in his September estimates.

iPhone 5 sales still strong

Milunovich said although there has been a shift toward the lower priced iPhones carrying the bulk of the weight of sales during the quarter, he still believes the iPhone 5 will make up approximately half of the company’s iPhone shipments. He points to a quarterly survey from Consumer Intelligence Research Partners, which indicates that the iPhone 5 is weaker than the 4S at the same point in its product cycle. Currently the iPhone 4 and 4S made up about 48 percent of purchases.

He also notes that replacement information shows that Apple Inc. (NASDAQ:AAPL) is “holding its own” with 34 percent of buyers switching from another brand and a quarter of buyers upgrading from feature phones.

New products coming in September / October

The analyst also listed the products he expects Apple Inc. (NASDAQ:AAPL) to announce in either September or October. He’s looking for the iPhone 5S to be announced late in September or early October. He thinks it will have fingerprint authentication and that mass production might begin late in the third quarter.

He also expects to see a midrange phone priced between $350 and $500 that will be available in multiple colors but have the same form factor. He thinks mass production of the handset could begin before production of the iPhone 5S.

He’s also looking for the 9.7-inch iPad 5 to have film touch, be lighter than the iPad 4 and have a thinner bezel. He expects the display to be provided by LGD, Samsung or Sharp. He said the iPad Mini with a Retina display could end up shifting to next year, although he still believes it will be announced in October with production beginning late next month. He believes Samsung will be making the Retina display for the device.

Is a deal ahead between Apple and China Mobile?

And finally, the analyst addresses the question of whether Apple Inc. (NASDAQ:AAPL) will finally make a deal with China Mobile. He is beginning to think that it won’t happen this year because of continued pressure because of the company’s high subsidies. Nonetheless, he expects to see a strong December quarter, even though investors are concerned that the company’s new products won’t provide enough of a wow factor.

Leave a Comment