Pacific Crest: Apple Guidance Will Be 'Well Below' Expecations

• Pacific Crest believes that Apple Inc. AAPL’s upcoming quarterly guidance will come in well below consensus expectations.
• The firm is calling for in-line earnings and revenue numbers from Apple for fiscal Q4.
• Analyst Andy Hargreaves sees limited downside to Apple’s share price and believes that lowered expectations could ultimately be good for the stock.

In a new report, Pacific Crest analyst Andy Hargreaves previews what he believes will ba a tough earnings report for Apple shareholders. Hargreaves believes that Apple’s iPhone numbers and guidance will come in below consensus expectations, but he feels that a readjustment of expectations might be just what the stock needs.

Earnings expectations
According to Hargreaves, Pacific Crest is calling for Apple’s fiscal Q4 earnings and revenue to fall in-line with consensus expectations. However, the firm expects Apple to guide for fiscal Q1 revenue “well below” Wall Street expectations of $76.4 billion. In addition, Pacific Crest is predicting Q1 iPhone unit sales of 66.9 million, a number that Hargreaves believes is below both buy-side and sell-side expectations.

Stable margins
Despite Pacific Crest’s call for weak guidance, the firm expects that gross margins on the iPhone will remain stable. This prediction should come as good news for shareholders, as Pacific Crest sees declining iPhone margins as the single biggest risk to Apple’s performance in the long-term.

Limited downside
Another piece of good news for Apple shareholders is that Pacific Crest sees little room to the downside from current levels for Apple’s stock.

“Despite our concern about near-term iPhone units, the extraordinary stickiness of Apple’s iOS platform and its ongoing cash-return program are likely to limit multiple contraction from current levels, which should limit downside,” Hargreaves explains.

For now, Pacific Crest maintains its Sector Weight rating on Apple.

Disclosure: the author holds no position in the stocks mentioned.