Wells Fargo Sees a Guide Down in iPhone Units When Apple (AAPL) Reports Tonight

Wells Fargo analyst, Maynard Um, sees an inline quarter from Apple (NASDAQ: AAPL) paired with a guide down for the June quarter but thinks the quarter/guide should create a favorable risk/reward scenario into the 7 cycle. The Street may be mismodeling iPhone units as well as Services but the 7 cycle should accelerate growth within the next 9 months.

The analyst expects FQ2 results to be in line (Street $52.0B/$2.00) but believe guidance could be below the Street’s $47.4B/$1.76. Remember that services revenue was helped $548MM last quarter from Samsung IP recognition, which the analyst expects will reverse out. June iPhone estimates assume 104k units per carrier, lower than the 107k units per carrier in the June quarter of the 5s cycle (despite the iPhone SE this year). These declines yr/yr should not be a surprise and while the Apple iPhone story has turned into one of greater penetration from one of carrier growth, every non-S cycle has been higher than the S cycle just prior to it.

The analyst thinks the current valuation is favorable at 8.3x FY17E FCF (10.5x EPS). No change to Outperform rating or $120-$130 valuation range.

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 $105.08 yesterday.

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