Apple (AAPL) 'Doom and Gloom' Fading - Drexel Hamilton
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Drexel Hamilton analyst Brian White notes the doom and gloom on Apple (NASDAQ: AAPL) is thawing with the help of a fiery Note 7 and iPhone 7. The analyst reiterated a Buy rating and price target of $185
- After a strong iPhone 7 launch in the U.S., healthy data points thus far in China this week, a stronger than seasonal 3Q:16 for our Apple Monitor and the Note 7 fiasco at Samsung, the doom and gloom around Apple is starting to thaw.
- Apple remains our top pick for H2:2016 given our view that the sales, profit and iPhone cycle have bottomed, while valuation remains depressed and we expect the iPhone 7 cycle will return the iPhone franchise to growth. We believe the iPhone 7/7 Plus can return Apple to iPhone unit growth in 2Q:FY17 and full year FY:17.
- In early September, a flurry of media outlets reported the Galaxy Note 7 was catching fire and exploding, forcing Samsung to halt shipments of the new device. Today, the NY Times reported that Samsung will stop producing the Galaxy Note 7 and we believe this provides a tailwind behind what we believe is already a healthy iPhone 7/7 Plus launch.
- With original market expectations for approximately 10-14 million Galaxy Note 7 units in H2:2016 (availability began on August 19), we believe Apple has an opportunity to pick up at least 8 million incremental units in CY:16. Moreover, this fiasco could permanently damage the Samsung brand in the smartphone market, a big opportunity for Apple to gain market share.
- During our visit to over 30 smartphone stores and electronic retailers in Shenzhen this week, we could feel the momentum of Apple's iPhone franchise and the struggles at some of its important competitors in China. The iPhone 7 Plus is clearly favored over the iPhone 7 in China, while the two new black colors were the most popular. Moreover, today's meetings with two leading China-based telecom carriers highlighted better demand for the iPhone 7/7 Plus launch compared to the iPhone 6s/6s Plus. In Hong Kong, one of our contacts indicated that the 256GB Jet Black iPhone 7 Plus was selling for HK22,000 (US$2,835) shortly after launch.
- Moreover, the Apple supply chain is pointing to a strong iPhone 7 launch with 3Q:16 sales for our Apple Monitor rising by 32% QoQ and well above the average increase of 19% over the past eleven years. This was the best September quarter ever for our Apple Monitor.
Shares of Apple closed at $116.05 yesterday.
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