Apple iPhone Estimates Cut Again At Credit Suisse; Analyst Sees Ultimate Downside Of $92 Per Share

Apple Inc. AAPL shares are stuck in the $96 range on Thursday morning after Credit Suisse analysts again cut their iPhone estimates for the next few quarters. The firm first cut its full year 2016 iPhone estimates on November 10 from 242 million to 222 million, citing "weak demand for the new iPhone 6S."

In its latest note, Credit Suisse said it now sees 207 million iPhone unit sales in the 2016 calendar year and 226 million in 2017. "We see a subdued iPhone cycle for the next few quarters, Kulbinder Garcha wrote, adding that "recent warnings from the supply chain (Dialog, Qorvo, Cirrus, etc.) and build plans" are catalysts for the second estimate cut. The firm now projects 48 million units sold in the March quarter, a 21.5 percent year-over-year decline.

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Garcha also wrote that at least four factors can negatively affect gross margins over the year: lower iPhone 6S margins compared to the 6, a lower mix of 5.5 inch 6S Plus screens, negative leverage and currency headwinds. The analyst projects gross margins declining from 40 percent last year to 38.8 percent this year and 38.6 percent the year after.

Valuation Still Compelling

Of note, Credit Suisse still likes Apple's stock. It maintained an Outperform rating on shares with a $140 price target, writing that recent weakness makes the risk-reward "compelling." The firm sees a downside of $92 per share given a worst-case 8.5x P/E.

Apple's high customer retention, ecosystem and $64 billion free cash flow are all positives Garcha likes going forward.