Apple iPhone 6s And 6s Plus: Here’s What Credit Suisse Has To Say

Credit Suisse reiterates Outperform rating, price target of $145 on Apple stock; cites long-term sales growth






Apple Inc. (NASDAQ:AAPL) will sustain the momentum of its sales in China over the long term, assures Credit Suisse, in a sell-side report issued today. The investment firm reiterates it target price of $145 as well as an Outperform rating on the stock.

The report comments on the volatility of the iPhone supply chain, amid concerns of an imminent slowdown in demand in China. However, it highlights that this slowdown in the Chinese economy has not scathed demand for Apple products thus far. It attributes the perseverance in demand to Apple's product quality and brand image.

The report states that the new iPhone 6s and 6s Plus will feature certain improvements in specs and functionality that could drive sustained share gains, as the iPhone-installed base in China is still in expansion mode. Credit Suisse also asserts that Apple’s exclusive ecosystem, a high retention rate, and a moderate product portfolio will help sustain sales over the long term; especially given the company's free cash flow of $64 billion per year.

Total iPhone sales are projected at 234-241 million units for the calendar year 2016, albeit slower growth. The current installed base of iPhones is estimated at 400 million units which continues to grow. Sales are projected to peak at 241 million units, provided the replacement cycle stretches to 29 months.

Credit Suisse believes the iPhone 6S will measure 4.7 inches and 6S Plus will measure 5.5 inches; and that the smartphones will be released on September 9. The specs upgrades expected are 2 GB memory, force-touch technology, an aluminum uni-body casing, and 12 mega pixel (MP) camera lens.

However, the report warns about the possibility of supply bottle-necks. These concerns are primarily on account of the supply chain in Asia because of factory production control component constraints, as a result of low yields. Assemble volumes could suffer if yield does not improve which would in turn, lead to a supply-demand imbalance. Yet Credit Suisse is optimistic about the huge total addressable market for large-size smartphones. Among risks highlighted in the report are; failure to launch innovative products that do not receive traction and competitive pressure from global consumer electronics companies.
Valuation and Price Target

Credit Suisse’s price target is based on a multiple of 13.5x to the earnings per share (EPS) for calendar year 2016. Its calculation includes $12 per share of net cash to be returned by the end of FY16.

41 out of 54 analysts who provide coverage on the stock; recommended a Buy rating. 11 analysts recommend a Hold while two analysts maintain a Sell rating. The consensus 12-month price target is $145.26, which reflects an upside potential of 31.3% over the current price of $110.6.