Clear iPhone Inventory Tees Up Apple's (AAPL) 2nd-Half - Nomura

Nomura Securities analyst Jeffrey Kvaal reiterated a Buy rating and $120 price target on Apple (NASDAQ: AAPL) following better than feared Q3 results. The analyst said the inventory clearance tees up 2H16.

Kvaal commetned, "iPhone demand was evidently never as bad as Apple feared; F3Q shipments were slightly better than expected and Apple reduced channel inventory by not 3mn units but 4mn. A clear channel should help Apple restore unit volume growth in FY17."

He said demand, inventory allow guidance solidly ahead of consensus. "The $46.5bn F4Q guidance midpoint implies iPhone volumes of easily 46mn; consensus was expecting $46.1bn / 44mn. Guidance for steady gross margins suggests F4Q EPS of $1.64 vs. consensus of $1.58."

Also, more upside likely given growth in the iOS subscriber base. "Apple believes iPhone demand will be down ~5% YoY in F4Q; its implied sell in guidance is similarly down ~5% YoY. Apple noted its iOS subscriber base is up ‘strong double digits’ – our work triangulates that to ~15%. The growing base and likely improvement in replacement rates (from record lows in 1H in the US) should drive volume growth in FY17; we model 8% to 230mn."

The firm lifted FY17 EPS estimate from $8.74 to $9.10.

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 $96.67 yesterday.

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