Cowen Previews Apple Earnings, Sees Upside In China

In a report published Friday, analysts at Cowen & Company maintained their Ourperform rating on Apple, Inc. AAPL. The price target was maintained at $135. The analysts believe that there could be upside to the stock, despite FX headwinds and high expectations.

Despite the FX headwinds, Cowen & Company has maintained its revenue, gross margin and EPS guidance for FQ2:15 at $58.4 billion, 39.5 percent and $2.29, respectively, higher than the consensus projections.

"Street numbers imply iPhone units ~55-56MM - we model 57MM and think this has upside to ~58MM w/improved 6+ supply providing some ASP tailwinds all things equal," the analysts explained.

Related Link: Why Stifel Hiked Apple iPhone Quarterly Estimates 11%

Recent surveys by Cowen & Company suggest that there could be further upside for Apple in China, following China Mobile LTE connection growth of more than 53 million in CQ1. Gross margins are also likely to come in at the higher end of the guidance range, despite the FX headwinds, driven by a better iPhone mix.

The analysts also expects iPad units to come in above the seasonal levels, driven by the "recent refresh and a iPhone 6/6+ halo effect." However, given that the company has reported lower year-on-year sales for the past four consecutive quarters, there could be some risk to the analysts' iPad estimates.

The FQ3:15 estimates have been set above the consensus, with expectations that Greater China is on track to becoming the company's largest iPhone market. However, the FX volatility is likely to persist.