Tuesday, March 18, 2008

Apple (NASDAQ:AAPL): Expect upside - BofA

- Banc of America is out fairly positive on Apple (NASDAQ:AAPL) saying notebooks/desktops are the key to watch for potential EPS upside in F2Q08. While they recently lowered their F2008 and F2009 EPS estimates due to iPod and iPhone revisions, they also note a continued large discrepancy for notebooks/desktops between F2Q08 sales estimates and estimate of Apple's production - normally the discrepancy is fairly low. As a result, it is likely that F2Q08 PC unit estimate for Apple could prove conservative, although the firm will take a wait and see approach through the final weeks of the quarter. PC unit upside could come from new product build-out (refreshes and new MacBook Air), channel inventory replenishment, and strong demand.

Fir also notes their current F2Q08 gross margin estimate is 34.8% and could prove to be a worst case scenario (compares to F1Q08 of 34.9% and Apple's guidance of 32%). Gross margin upside could come from favorable mix (higher sales mix from PCs and software, even with a Q/Q
revenue decline in software). Gross margins typically increase Q/Q in March.

Sizing the potential EPS upside. BAC's F2Q08 EPS estimate of $1.07 could prove to be $0.08 conservative with only 200,000 PC units of upside, at current gross margin estimate. Gross margin upside of 100bps would add another $0.06 to EPS for F2Q08.

Maintains Buy rating. With the stock in the '$120's' and a lot of potential bad news priced in, they are buyers of the name given the potential upside opportunities.

Notablecalls: Think this reaffirms my positive stance on AAPL. Also note that the NPD data released late last night backs this view.

Not making a call on the stock here (s-t). GS, LEH and Mr. Helicopter make things somewhat unpredictable here. Just letting you know it's out there.

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