Credit Suisse Cheers Apple 'Finally' Entering The Mid-Tier Market

Credit Suisse’s Kulbinder Garcha maintained an Outperform rating for Apple Inc. AAPL, with a price target of $140, after the company released updates to its iPhone portfolio, a new iPad Pro, additional Apple Watch bands and software updates for iOS and tvOS at its latest event.

“We believe that the releases complement Apple's solid portfolio in the compute market,” Kulbinder Garcha wrote. The EPS estimates for 2016 and 2017 have been raised by 1 percent to $9.29 and by 2 percent to $10.51, respectively.

iPhone

Apple released a 4” iPhone SE, as was widely expected. Garcha mentioned that the key new features and an attractive price point of $399 could “prove to be a solid move for the iPhone business.” He cited three reasons:

1. The features offered compare favorably with competing devices in the $300-$500 segment.
2. The iPhone SE is likely to add to units. The analyst projected ~18mn units for 2016 and ~30mn units for 2017. He commented, “While the market will be concerned on cannibalization of current high end users, we believe this will largely be restricted to 6/6s 16GB consumers and assume cannibalization over time of 16mn units.”
3. The latest device is likely to boost Apple's iPhone installed base of 600mn active devices and provide new users who may upgrade to higher price points in time and also potentially buy other Apple compute devices.

iPad

The new 9.7” iPad Air has a number of the features and performance of the 12.9” iPad Pro. The latest device is priced at $600-$1,029, depending on storage capacity. “We retain our iPad estimates at 49.5mn and 49.0mn and believe there could be modest upside over time,” Garcha wrote.

While saying that Apple was finally entering the mid-tier market, the analyst mentioned, “From a fundamental perspective, we note that the new offerings and updates are welcomed additions to the portfolio that will strengthen not only the competitiveness of each product category, but also the wider ecosystem.”