Wells Fargo Resumes Apple (AAPL) at Outperform; Says iPhone 5 Launch Will Be 'Biggest Product Launch in Consumer Electronics' History'

June 27, 2012 4:51 PM EDT Send to a Friend
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Price: $117.60 -0.87%

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Wells Fargo resumed coverage on shares of Apple (NASDAQ: AAPL) with an Outperform rating and $640-$660 valuation range Wednesday afternoon.

The firm said "new iPhone launches and the resulting earnings upside driven by demand have historically been the biggest share catalysts for Apple." Trading at 10.5x Wells Fargo's FY13 estimate, the stock looks undervalued "given what we believe will be the biggest product launch in consumer electronics' history (iPhone 5 in fall)."

Wells Fargo is modeling for Apple to report FY12 and FY13 EPS of $46.55 and $54.27, respectively. The new price target is based on a P/E multiple of 12x the FY2013 EPS estimate.

The firm sees upside potential to FQ3 2012 consensus EPS of $10.19 and is estimating $10.84. For FQ4, the firm sees the consensus EPS of $10.33 as "aggressive" and is targeting $9.53. They expect any potential weakness around these results to be short-lived.

On an Apple television set (iTV), the firm said it is more likely in CY2013 at the earliest. In addition the iPhone, they see refreshes in iPad mini, iMac, Mac Pro, and various iPods. They expect the new MacBook Pro releases to help drive units and revenue with modest offset on gross margin. Other catalysts could be an dividend raise in late 2013.

The firm sees warranty overaccruals as a potential accounting lever that could support gross margin if it is reversed. The firm estimates that the overaccrual is about $1.1 billion, or, all else equal, roughly 290 basis points (bps) in gross margin, or about $0.86 in EPS.

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


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