Is Apple (AAPL) Finally a Buy Ahead of Q3 Print?

Arguably the most thoughtful tech analyst, Bernstein's Toni Sacconaghi, reiterated his Outperform rating on shares of Apple (NASDAQ: AAPL) but cut his price target to $125.00 from $135.00 ahead of third quarter earnings after the close. This follow's BGC's Colin Gillis cutting Apple's rating to sell yesterday and Piper Jaffray's Gene Munster stating Apple's quarter is a "neutral event".

Mr Munster has long been the bull of this crowd, having the fortitude to maintain a $153 price target but looking at the numbers underlying the expectations, there really isn't much of a difference between the analysts. In fact, for the quarter, the bear (Mr Gillis) is actually expecting 500k more iPhones and $0.06 more in EPS, than the bull.

• Mr. Sacconaghi is expecting 41M iPhones, revenues of $42.8B and EPS of $1.42
• Mr. Gillis is expecting 40.5M iPhones, revenues of $42.2B and EPS of $1.46
• Mr. Munster is expecting 40M iPhones, revenues of 42.3B and EPS of $1.40

The Street is forward looking right? The variance must be in expectations for guidance but looking ahead, the variance is slight here as well. The only significant difference is in iPhone units during an expectedly weak quarter.

• Mr Munster: $46.5M Rev / 44M iPhones / $1.59
• Mr Gillis: $43.8 Rev / 37.5M iPhones / $1.54
• Mr Sacconaghi $41-$43 / 43.5M iPhones / $1.50 EPS

While stock price opinions vary from a 13% drop to a 50% increase, the underlying fundamentals used to drive these targets are in a pretty narrow range for the next two quarters. If the bullish Gene Munster capitulated on short term sentiment yesterday by stating that he believes this quarter is a neutral event and Mr Sacconaghi sees the risk-reward as attractive but cut his price target anyway it seems that all of the analysts are on the bearish side of the coming event.

It's too early to handicap the success of the coming iPhone release but there are things to look for that could make a meaningful difference in '17 estimates.:

China - The company is clearly dependent on the market and after -26% decline last quarter, does the decline continue or stabilize. Mr. Gillis has -30% modeled but the other two did not seem to have published estimates for the geography.

Services acceleration - The street is expecting $5.5 - $6.5 billion and an increase would represent a shift to more ratable revenue but nobody seems to anticipate an acceleration in business yet. If Services did accelerate, it could represent meaningful and ongoing upside to revenue that would flow through to future quarters.

Channel Inventory - Channel inventory levels and future reductions. The company has said it would reduce by $2 billion to address macro headwinds. The expectation is that 6/6s units will decline while SE inventory will build. If that is complete, it would not be a source for upside but an indication of stabilization and viewed as a positive.

Mac Sales - the street is at 4.4M units with Bernstein at the high end (4.6M) and 4.3M for Piper and BCG.

iPad - iPad revenue has declined for 9 straight quarter and again Bernstein is at the high end of estimates with 9.4M units, the street is at 8.9M units with Piper and BCG are both at 8.9M.

iWatch - Opinion of the success here varies but the financial contribution is minimal. The category matters for two reasons however: an indication of future payments adoption and as an indication of the company's ability to successfully launch a winning product in the post Jobs era.

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