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