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BofA Raises Apple's Price Target, Expects 'Another Leg Up' Following Q1 Earnings

Shanthi Rexaline

Apple Inc. (NASDAQ: AAPL) is expected to report strong fiscal first-quarter results when it reports Jan. 28, but further upside from then on is uncertain, according to BofA Securities.

The Analyst

Wamsi Mohan reiterated a Buy rating on Apple and raised the price target from $330 to $340.

The Thesis

Strong sales of accessories such as AirPods and iPhone 11 should help Apple report December quarter revenues of $89 billion, at the high end of the company's guidance range, Mohan said. The strong uptake of iPhone 11 shows the company can ring in a steady stream of sales despite no major function changes in design.

Higher mix of LCD phones, however, could leave gross margins flat at 38.1%.

Mohan expects in-line to better guidance for March quarter, attributing the expectations to more near-term strength from iPhones, given easy sell-in compares from March.

"The 5G cycle offers multi-year visibility on iPhone sales and this, combined with double-digit Services revenue growth, has driven the multiple higher, in our opinion," Mohan wrote in a note. "We expect another leg up in the stock after Apple reports."

Less Certain Forward Outlook

The firm sees further upside as less certain due to, among other reasons:

  • Positive estimate revisions likely unachievable, given tariff, gross margin and opex headwinds
  • P/E multiple increasing to the high-end of the long-term range
  • Pricing dilemma with respect to 5G phones, which could see lower sales if priced higher but lower margin if priced lower
  • Likelihood of gross profit dollar growth peaking in the March quarter
  • Consensus giving too much credit for buybacks

The Price Action

Apple's stock traded around $318 per share at time of publication.

Related Links:

4 Things To Watch For On Apple's Q1 Earnings Call

Analyst: Apple's Services Narrative Is Largely Priced In; Stock No Longer Attractive

Latest Ratings for AAPL

Date Firm Action From To
Jan 2020 Maintains Buy
Jan 2020 Maintains Neutral
Jan 2020 Maintains Overweight

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings


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