Rosenblatt: Apple’s Q3 Highlighted By Higher iPhone Average Selling Price, Better Gross Margins

Apple Inc. (NASDAQ: AAPL) reported Tuesday its fiscal third-quarter results, highlighted by higher iPhone average selling price (ASP) and better gross margins.

The Analyst

Rosenblatt Securities’ Jun Zhang maintains a Buy rating on Apple with a price target lifted from $180 to $200.

The Thesis

Apple reported a top-and-bottom-line beat in an overall “solid” quarter, Zhang said in a note. Revenue rose across each geographic segment on a year-over-year basis with a notable 20-percent uptick in the Americas region. iPhone ASP rose from $606 a year ago to $724, mostly driven by the iPhone X which boasts a price tag starting at $999.

Encouragingly, Zhang said gross margin of 38.3 percent came in at the midpoint of management’s guidance and in-line with the consensus estimate of 38.5 percent. Based on Rosenblatt Securities’ proprietary and first hand checks gross margins should move higher as consumers seek out smartphone devices with higher memory capacity and Apple is active in reducing its material and component costs, especially for the new LCD model.

Looking forward to the fiscal fourth quarter, the analyst said Apple should ship 56 million total iPhone units (new and old models) and 82 million total units is expected to be shipped in the quarter following.

Overall, Zhang thinks investors should continue holding a positive view on Apple as the company is still showing strong iPhone shipments and service revenue with an increasing margin profile. A new $200 price target is based on a 17 times multiple on fiscal 2018 estimated EPS.

Price Action

Shares of Apple were trading higher by 4.4 percent early Tuesday at $198.68, which is above the stock’s all-time high of $195.96.

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