Baird Equity Research upped its fourth quarter earnings estimate for Apple (AAPL), even if Apple’s strong margins face “longer-term risk” in light of competitor margin declines.
Baird raised its fourth quarter earnings forecast for Apple from $8.42 to $9.97, versus guidance of $9.30, and raised calendar 2012 earnings from $34.95 to $38.49, “driven by higher iPad and iPhone sales assumptions.”
Nokia’s (NOK) total device gross margins declined from 25.7% to 23.3% in the third quarter, while Sony Ericsson (ERIC) margins declined from 29.7% to 26.9% year over year. Baird writes:
“Apple remains the standout performer [with gross margins] at just over 40%. Competitive forces are likely to push against that, but we believe a mix shift back to the high-margin iPhone should help them sustain margin levels near-to-medium term.”
Demand has been strong for the iPhone 3GS with AT&T (T) giving it away for free.? That’s good for Apple and gives AT&T a “nice competitive advantage,” Baird says, though Verizon (VZ) remains dominant in wireless, adding 882,000 postpay wireless subscribers in the quarter. (That amounted to a new company record for wireless EBITDA margins at 47.8%.) AT&T, in contrast, added 319,000 postpay wireless subscribers, with a 43.7% wireless margin, which was AT&T’s best result since the first quarter of 2010.
Baird estimates that in the third quarter, Verizon’s overall iPhone sales accounted for over 70% of smartphones sales among those priced over $200.
“In other words, the iPhone appears to be dominating the high-end smartphone category even more than we might have expected. Imagine what might happen [when] Apple adds LTE [long term evolution that speeds data delivery] to the iPhone.”
Following earni! ngs repo rts last week, Baird says AT&T and Verizon shares remain “good defensive yield ideas” and it is positive on Apple. Baird has a $540 price target, using a 14x multiple on 2012 EPS.
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