Some Positive, Some Negative Talking Points on Apple (AAPL) - BMO

April 26, 2013 11:48 AM EDT
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BMO Capital Keith Bachman, who issued the lone downgrade on Apple (NASDAQ: AAPL) following the iPhone giant's Q2 results and guidance, offered a few "chatter points" on the stock Friday.

First, on the positive side, Bachman notes that an accrual expense for warranty provisions hurt gross margins in the quarter. "Without this accrual, gross margins would have been about 100 bp higher than reported," he said. This could imply that Apple's guidance for gross margins in the June quarter of 36% to 37% is conservative.

Next, results and commentary from Apple component supplier Largan could also be a positive. Largan said it sees quarter-over-quarter revenue growth in Q2 after an approx. 40% quarter-over-quarter revenue decline in Q1. "We would expect the supply chain to complete some "re-stocking," but we don't see a need to change our forecast. However, we are mindful that component suppliers will likely sound more positive over the next few months, which could help support Apple shares near term."

The analyst also noted that competitor Samsung seems to be doing very well, versus the struggles Apple is seeing. "Samsung Galaxy 3 and Note 2 seemed to have q/q unit shipments that were roughly flat in the March quarter, even in a seasonally weak quarter, and in front of the G4 launch," the analyst said.

Lastly, the analyst said while he is not positive the data is fully updated, the Street consensus of 7% revenue growth in the September quarter is well ahead of his expectation of 4% revenue growth. He thinks the Street revenue estiamtes for the quarter are "aggressive." Commenting, the analyst said, "If Apple were to begin shipments of the mid price phone very early in the September quarter, we think our estimates might be conservative, and Street estimates would be reasonable. However, our take is that the mid-priced phone will be launched later in the September quarter, and we think the 5s will launch late in the September quarter. Further, we do not believe the 5s will have a big impact on unit demand."

Bachman maintained a Market Perform rating and price target of $435 on Apple.

For an analyst ratings summary and ratings history on Apple click here. For more ratings news on Apple click here.

Shares of Apple closed at $408.38 yesterday.

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