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. (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:
- 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;
- Simultaneously they believe the Samsung Galaxy S4 will launch in mid-March and is likely to gain share in the high-end; and
- 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.
