Apple (AAPL) September Seasonally Weaker, But Q3 at Record - Drexel Hamilton
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Drexel Hamilton analyst Brian White reiterated his Buy rating and $185 price target on Apple (NASDAQ: AAPL) noting that while September was seasonally weaker, Q3 is at a record.
- As of this morning, all of the companies in our Apple Monitor have reported September sales and the results came in well below historical averages for the month; however, this was the best September quarter ever.
- Given the gloom and doom that engulfed the Apple story this year, we have compared this summer to the summer of 2013. Although Apple has bounced nicely off its lows this year; we believe there is still meaningful upside given the depressed valuation, our expectation of a return to iPhone growth in FY:17 and challenges at competitors (e.g., Samsung).
- Final September sales for our Apple Monitor rose by 5% MoM but below the average increase of 14% over the past eleven years. Given the increased seasonality around the iPhone, September sales over the past five years for our Apple Monitor have risen by 19% MoM and increased by 14% in September 2015. We are not concerned about a weaker than average September given that August of this year was the best August ever and July of this year was the second-best July on record.
- More importantly, 3Q:16 sales for our Apple Monitor rose 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. By comparison, we are modeling nearly a 9% QoQ sales increase for Apple in the September quarter versus a five-year average increase of 5% for past September quarters.
- Apple remains our top pick for H2:2016 given our view that the sales, profit and iPhone unit 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 the full year FY:17.
- In our view, the next big iPhone market that could open up for Apple is India and today the iPhone 7/7 Plus launched in the country. We believe Apple has an opportunity to generate $10-15 billion in annual sales in India by FY:21. During the first three quarters of FY:16, iPhone sales in India grew by 51% YoY. We view India as at a similar stage as China was for Apple approximately 6 to 7 years ago.
Shares of Apple closed at $113.89 yesterday.
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