RBC Capital’s top analyst Amit Daryanani is out with a research note on Apple (NASDAQ:AAPL), defending the tech giant’s stock into third-quarter earnings on July 31. Q3 is usually Apple’s weakest quarter as it occurs at the end of the iPhone sales cycle.
Daryanani expects Apple to post results in-line or slightly above Street expectations driven by stable revenues, modest upside to GMs and buyback tailwinds. Specifically, the analyst’s revenue/EPS estimates stand at $52.4B and $2.17, compared to Street’s expectations of $52.3B and $2.16, respectively. The analyst’s FY18 revenue/EPS estimates are $263.3/ $11.56 vs. Street at $261.4/$11.47, respectively.
Daryanani wrote, “While FX could be a slight headwind, AAPL’s hedging program should offset it particularly when it comes to EPS & FCF. We think iPhone promotional activity this quarter was higher across carriers, which should support revenues and unit sell through in the quarter. Investor sentiment into Jun-qtr is more positive vs. what we saw last qtr, particularly given strength in services & buyback momentum . We think the higher ASP dynamic should continue in Sep-qtr, given iPhone X wasn’t a part of the mix last year until Dec-qtr and its pending launch impacted iPhone 8 sales last year. Overall, we see Sep-qtr revenues up mid/high-teens vs Sep-2017. On the GM side, in addition to ASP dynamic we should start seeing impact of lower NAND prices flowing through particularly with the launch of new iPhones. Finally, services momentum should remain strong and AAPL recently stated that subscription revenues are up 95% y/y.”
“Net/Net: We see several levers that AAPL can use to convert low single digit unit/sales growth to mid-teens EPS growth: 1) Gross margin upside from cost downs, NAND tailwinds & yield efficiencies, 2) Services growth, & 3) Capital allocation,” the analyst concluded.
As such, Daryanani reiterates an Outperform rating on Apple shares, with a price target of $210, which implies an upside of 10% from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Amit Daryanani has a yearly average return of 26.3% and a 81% success rate. Daryanani has a 31.5% average return when recommending AAPL, and is ranked #27 out of 4836 analysts.
Overall, with 14 recent Buy ratings versus 11 Hold ratings, AAPL has a Buy analyst consensus rating. This is with an average analyst price target of $201.18.