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Component pricing improving; Apple poised to take advantage

updated 10:40 pm EDT, Wed July 6, 2011

Sterne Agge's Wu predicting higher Apple earnings

Apple's component costs, which were a worry in April, are now trending in Apple's favor according to Sterne Agee analyst Shaw Wu. The markets appear to be recovering from the chaos in Japan earlier in the year, with pricing on memory, NAND flash memory and displays all improving. Apple has a good track record for taking advantage of component pricing in the past and should continue to do so, with higher gross margins for the quarter, Wu believes.

Wu predicts a 39.8 percent gross margin, up 0.8 percent based on the lower-trending component prices, for the quarter and calls for 39.5 percent for the fiscal year 2011, up 0.3 percent. He is continuing with sales forecasts of 17 million iPhones, 6.8 million iPads, 8.3 million iPods and 3.9 million Macs. Revenue for the quarter should be $24.6 billion, with $5.95 in earnings per share (EPS), a 20-cent rise in EPS for the quarter -- for comparison, the consensus estimate for Apple's fiscal third quarter is $24.6 billion at $5.69 EPS.

For FY2011 overall, Wu is at $103.7 billion with $25.35 EPS, and a 35-cent rise in EPS -- $200 million higher in revenue and 53 cents higher in EPS than the consensus. Wu's FY2012 estimate is $125.4 billion with $29.70 EPS, leading Wu to stand on his "Buy" rating. Sterne Agee is targeting Apple for a 12-month price target of $460 -- it is currently trading at $351, up over $2 in trading today -- based on a conservative 12.3x multiple on the CY12 EPS of $31.83.

Wu has upped his target from $415, to $438 and now to $460 over the first six months this year.

by MacNN Staff



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