Apple: Color on Quarter (118.25)
-->AAPL down 3% premarket after reporting third straight Y/Y sales decline; gross margins are declining and Q1 gross margin guidance was light. Investors are hoping for some innovation to create the next leg of growth. AAPL had risen 22% since its fiscal third quarter report in July.
- Stifel downgraded to Hold from Buy as they believe shares of Apple could remain range bound ($105-120/share; 6-7x EV/EBITDA on C2018 estimates vs. 5-10x NTM historical 5-yr range) over the next 2-3 quarters until they/investors are able to garner greater insight into potential fundamental upside drivers. They move their target price to $115 from $130, or 7x EV/EBITDA. They were admittedly looking for a solid F4Q16 beat-and-raise; leading into clearer upside potential for F1Q17.
- Cowen: While there could be some minor hand wringing over GMs, AAPL is tightly managing supply but still nicely threaded the needle on guidance. From here, investors can now really start to focus on iPhone 10 being the flame in C2017 that lights the "powder keg" that is forming in the installed base. Target remains $135, but even this is very conservative given their estimates and comp multiples.
- Mizuho: Apple reported fourth quarter results that came in-line with expectations. Management noted strong product cycle and continued switching activity but called out current undersupply of 7+ models. Guidance implied iPhone units for DecQ inline with consensus, though expectations had risen into the print given recent Samsung news flow. They continue to favor the stock on potential upside to estimates, undemanding valuation and material upside based on LTVC analysis. Reiterate Buy rating and $130 PT.
- RBC thinks the sell-off creates an attractive entry point for investors given fundamentals are largely intact and AAPL left room for upside in Dec-qtr. Sept-qtr results were largely in line with expectations and AAPL guided for modest upside to December revenue ($76-78B vs. Street at ~$75B). However, Dec-qtr gross margin outlook (38-38.5%) and implied EPS guide of $3.15 were slightly below expectations. iPhone units came in at 45.5M (while AAPL increased channel inventory by 2.5M) and their guide implies iPhone units improving by ~60-70% q/q to ~75-77M range for Dec-qtr and ASPs should improve materially in Dec-qtr (improved mix). Overall, they think results/guide mark a solid start to what they think will be a stable iPhone 7/7+ cycle. Maintain OP and $125 target.
- Needham notes iPhone revenue rose $4.1B to $28.2B driven in part by Samsung's Galaxy Note 7 imploding in September. Forbes valued the Samsung brand at $83B before the Note 7 debacle and they estimate $10-$20B of brand value transfers to AAPL during the next adoption cycle owing to Samsung's poor handling of the replacement, recall and ultimate discontinuation of the Note 7. Services revenue was a bright spot, up 24% y/y to $6.3B in FY4Q16. Of the $350mm extra services revenue q/q, their channel checks indicate that Pokemon Go represented much of the growth. Software-based revenue growth underscores AAPL's platform value, and raises reported margins, lowers earnings volatility, and lowers risk compared to a hardware-only business model.
- Maxim: Dec quarter guidance likely conservative given: Supply constraints that imply y/y growth will transpire on an apples-to-apples basis. Implied more iPhones in transit on a y/y basis, indicating production capacity is up y/y. China and India commentary that is consistent with why we are modelling for a 16% y/y sell-out increase in iPhone units in FY17E. Maintaining street-high estimates based on survey data and analysis, but lowering GM estimate as we triangulate guidance implies about 200bp of GM pressure on iPhone 7 cycle units. Their proprietary survey data point to AAPL being on the precipice of a multi-year investment upcycle; $173 tgt.
- Mizuho: The lack of DecQ upside for AAPL, despite the 14th week, and Samsung's issues might be a near-term challenge for the RF component suppliers SWKS and QRVO. AAPL noted iPhone 7+ supply constraints and the much earlier launch in SepQ took down some of the DecQ upside, while China remains a headwind.