Oppenheimer raises Apple target ahead of second quarter earnings

Apple will release results of its second quarter ended March on Tuesday, April 20 at 2:00 p.m. PDT/5:00 p.m. EDT. On average, analysts polled by Thompson Financial expect the company to earn $2.42 per share on revenues of $11.96 billion, driven by sales of 2.7 million Macs, 9 million iPods and 6.8 million iPhones. Gross margin is forecasted to come in at 40%, or 100 basis points above management's guidance.

"We're raising our Apple estimates ahead of what should be strong March-quarter results [but] we believe the stock reaction will be positive but somewhat muted," Oppenheimer analyst Yair Reiner wrote in a research note to clients. "The first reason is that F2Q10 EPS upside will probably be kept in check by FX headwinds—a factor largely overlooked by the Street. The other mitigating factor could be Apple's hyperconservative guidance, which is likely to exclude the potential impact of the next iPhone release."

More specifically, Reiner:

• raised his F2Q10 estimates to $12.4 billion in revenue and $2.54 in EPS from $12.2 billion and $2.40, respectively.
• pushed his FY10 estimates to $56.0 billion in revenue and $11.98 in EPS from $54.2 billion and $11.46, respectively.
• upped his FY11 estimates to $64.4 billion in revenue and $13.88 in EPS from $60.9 billion and $12.88, respectively.
• increased his FY10 operating FCF estimate to $12.5 billion ($13.56/share) from $11.8 billion ($12.83/share).

Looking ahead to Apple's current third quarter, the analyst said the biggest swing factor will be the timing of the next iPhone release. "If it happens [by the end of June], Street estimates should be easily beatable," he explained. "If it slips to [the July-> September quarter], consensus will be tougher to top, especially on gross margin, which could suffer as high-margin iPhone sales slow ahead of a refresh."

Reiner's new estimates account for the conservative assumption that the next iPhone does not launch until the September quarter, adding that the conservatism seems warranted given the stress that the iPad has placed on Apple's supply chain and on the manufacturers of components shared by both the iPad and iPhone.

Still, he see's Apple as a long term value and therefore raised his price target to $285 from $265, saying he arrived at the target by applying his prior 18x multiple to his upwardly revised fiscal year 2011 NOPAT estimate of $13.52/share then added back $43 in cash per share taken from the company's bankroll.

Separately on Friday, Morgan Stanley analyst Katy Huberty noted that U.S. Mac shipment figures for Apple's March quarter out of Gartner and IDC paint two different pictures of the segment's performance, with the former indicating 1.4 million units (+34% year-over-year) and the latter suggesting 1.1 million units (+8% year-over-year). However, she said data from a third firm, NPD, shows Apple US consumer shipments rose ~30% year-over-year in the March quarter, implying that Gartner's numbers are closer to reality.

"[This gives] us more confidence in our [March quarter] Mac estimate of 3M units," she said.

Huberty's March quarter estimates also include $2.40 in per share earnings on revenues of $12 billion.