Piper Sandler expects Apple growth to continue, margins to expand

Credit: Andrew O'Hara, AppleInsider

In a note to investors seen by AppleInsider, Piper Sandler analyst Harsh Kumar notes that Apple significantly beat Wall Street expectations on the top and bottom lines.

On the results, Kumar says a major highlight is Apple's report of 42.5% gross margins during the quarter, which represents a 270 basis point sequential increase. That rate also handily beat Wall Street expectations of 39.7%. Kumar attributes it to a favorable mix and higher revenue, as well as the lack of foreign exchange headwinds.

Although Apple declined to provide specific revenue guidance for the June quarter, Kumar called Apple's expectation of June quarter gross margins dropping only 50 basis points impressive.

The analyst views that dynamic positively. He expects Apple's gross margins to steadily expand as its software and services become a larger portion of its overall revenue mix.

Even with the relatively lower decline in gross margins, the June quarter is still the bottom for fiscal 2021. That's because Apple expects greater than usual seasonal declines based on the later timing of the iPhone 12 and iPhone 12 Pro and supply constraint headwinds contributing to a $3 billion to $4 billion revenue dip.

The analyst believes Apple continues to sport a strong balance sheet, with a solid cash position and significant free cash flow generation.

Kumar maintains his 12-month AAPL price target of $160. That's based on a 31x price-to-earnings multiple on Piper Sandler's 2021 earnings estimates. The analyst reiterates his Overweight rating on AAPL shares.