BofA Raises Apple's Price Target, Expects 'Another Leg Up' Following Q1 Earnings

Apple Inc. AAPL is expected to report strong fiscal first-quarter results when it reports Jan. 28, but further upside from then on is uncertain, according to BofA Securities.

The Analyst

Wamsi Mohan reiterated a Buy rating on Apple and raised the price target from $330 to $340.

The Thesis

Strong sales of accessories such as AirPods and iPhone 11 should help Apple report December quarter revenues of $89 billion, at the high end of the company's guidance range, Mohan said. The strong uptake of iPhone 11 shows the company can ring in a steady stream of sales despite no major function changes in design.

Higher mix of LCD phones, however, could leave gross margins flat at 38.1%.

Mohan expects in-line to better guidance for March quarter, attributing the expectations to more near-term strength from iPhones, given easy sell-in compares from March.

"The 5G cycle offers multi-year visibility on iPhone sales and this, combined with double-digit Services revenue growth, has driven the multiple higher, in our opinion," Mohan wrote in a note. "We expect another leg up in the stock after Apple reports."

Less Certain Forward Outlook

The firm sees further upside as less certain due to, among other reasons:

Positive estimate revisions likely unachievable, given tariff, gross margin and opex headwinds
P/E multiple increasing to the high-end of the long-term range
Pricing dilemma with respect to 5G phones, which could see lower sales if priced higher but lower margin if priced lower
Likelihood of gross profit dollar growth peaking in the March quarter
Consensus giving too much credit for buybacks