From a note to Sanford C. Bernstein clients that landed on my desktop Wednesday:
We are raising our FY Q4 and FY 19 revenue and EPS estimates, largely due to richer ASP assumptions for iPhone and Watch. While Q4 18 results are not important on a standalone perspective, we are ahead of both consensus and guidance largely due to iPhone ASPs. Overall, we forecast Q4 18 iPhone ASPs of $800, vs consensus at $741, resulting in revenues of $63.3B vs consensus at $61.3B and EPS of $2.90 vs consensus at $2.77.
For FY 19, we expect flattish iPhone unit growth and gross margins YoY, but expect notably higher iPhone ASPs ($813 vs. $775), which leads our revenue and EPS estimates to be above consensus forecasts ($291.3B, $14.15 vs. $280.6B, $13.64). That said, we believe that iPhone unit growth is likely to be the critical metric for investors going forward. We see the stock likely continuing to outperform if iPhone units can grow in FY 19, and the stock underperforming if units are down 3% or more. Given that we believe consensus iPhone ASPs are too low for Q4 and Q1, we believe that Apple could potentially guide Q1 in line or above consensus revenues of $92.7B (we are at $95.9B). We would view guidance for sequential revenue growth of >50% as pointing to flattish iPhone unit growth or better…
On net, we remain constructive on Apple in the near-term, largely because revenue and EPS estimates appear too conservative; that said, we note that the stock trades at a 5-year high on most valuation metrics, and believe iPhone unit growth in FY 19 will likely be the key driver of investor sentiment. We raise our price target to $225 on account of our higher, rolled forward EPS estimates and continue to rate Apple Market-Perform.
Maintains Market Perform rating and raises price target to $225 from $200.
See also: Yesterday’s post, featuring Sacconaghi’s lagging Apple price target history.
My take: Overdue but welcome. Like most of Sacconaghi’s deep dives, this one is packed with useful charts. Here, for example, is his six-year history of Apple’s sequential changes in iPhone channel inventory:
Click to enlarge.