Deutsche Bank previewed the Apple Inc. (NASDAQ: AAPL) Q2 results Thursday. The firm maintained a Hold rating and raised its price target from $110 to $125.
Overall Quarter Perspective
Analysts Sherri Scribner and Larry Zhong expected another strong quarter for the iPhone and have revised unit estimates from 55 million to 60 million.
"Despite our expectations for strong results in F2Q-15, we expect sales growth to decelerate from here as the iPhone cycle wanes, and we don't view [Apple] Watch as a catalyst this year," Scribner said.
Limited Upside: iPhone And Upmodel
Both the last iPhone refresh and the upmodel coming in the fall were seen as having limited upside potential, as the "growth in the smartphone market is currently being driven by cheaper and low-end smart-phones, which are especially popular in growth regions like China and India," according to Scribner.
Upside: Operating Margins
The analysts also expected to see upside to Operating Margins for Q2; however, it was believed this was already factored into expectations.
Little Material Impact: Apple Watch
Looking to the Apple Watch, the analysts did not see a material impact on results until fiscal 2016. The firm modeled that Apple will ship 17.6 million watches in 2015 and expected Apple's attach rate to iPhones to approach 25 percent by 2018.
Limited Driver: Apple Pay
Similarly, Apple Pay was seen as "a limited revenue driver, which is more of a feature to benefit iPhone users." Scribner continued, "Under the generous assumption that Apple Pay obtains 100 percent share of the domestic $4.7 trillion payments markets, the $7 billion revenue generated will be a small percentage of total current sales for Apple."
The analysts expected Q2 EPS of $2.27; the new price target of $125 was based on shares trading at 13x the estimated FY 2016 EPS of $9.40 on revenue of $233.74 billion.
Apple recently traded at $130.28, up just over 0.24 percent.
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