Cowen: Apple Sales Might Reach $90 Billion in Q1

Apple (AAPL) will release its fourth-quarter results on Wednesday. While analysts expect the company to report sales of $62.91 billion and earnings of $2.84 in the September quarter, all eyes will be on the company’s forecast for the December quarter.

Will Apple post record sales in fiscal Q1?

According to an Apple Insider report, investment bank Cowen expects Apple to post sales of $90 billion in the first quarter of fiscal 2020. If the company achieves the revenue estimate, it will be Apple’s best quarter.

In the first quarter of fiscal 2018, Apple reported sales of $88.3 billion. The sales fell to $84.3 billion in the first quarter of 2019. The average Wall Street revenue estimate for the company’s sales in the first quarter of 2020 is $86.82 billion.

Cowen is optimistic about the demand for iPhone 11 and Apple’s Services business. A Cowen investors’ note said, “[Recent]… third party data suggests the recent price cut to the XR model and newly launched 11 are seeing healthy demand. Continued expansion in the iPhone trade-in program and 0% financing options are also expected to play a part in improving affordability.”

Cowen expects iPhone shipments to touch 69 million in the first quarter—up from the previous estimate of $63 million.

Morgan Stanley is also bullish on iPhone and Services

Last week, Morgan Stanley (MS) analyst Katy Huberty increased Apple’s target price from $247 to $289. Another Apple Insider report stated that Huberty is bullish on the stock due to the growth in Apple TV+ and iPhone demand.

Morgan Stanley expects Apple’s Services revenues to rise by 2 percentage points in 2020 due to Apple TV+. The company’s latest subscription service will also add one point to its fiscal 2020 earnings.

Morgan Stanley has a conservative estimate of 68 million paid Apple TV+ subscribers by 2025. The bullish estimates stand at 175 million, while the base case estimates are 136 million subscribers. Morgan Stanley expects Apple TV+ sales to reach $9 billion by 2025.

iPhone is gaining market share in Europe 

The iPhone, Apple’s flagship product, continues to gain traction in developed markets. A Kantar report estimates that the iPhone accounted for 18.9% of all smartphone sales in the five major European markets in the September quarter.

In comparison, Android’s (GOOG) (GOOGL) market share fell by 1.5 percentage points in Europe at the end of the September quarter. Apple’s latest lineup of iPhones will likely increase the demand in China (FXI). The iPhone is expected to gain market share in this region as well.

The company has lost significant sales to Chinese smartphone manufacturers, including Huawei and Xiaomi, over the years. Kantar estimated that Chinese brands accounted for 79.3% of smartphone sales in the country in the third quarter.

According to a Consumer Intelligence Research Partners report, the iPhone 11 lineup of smartphones accounted for 20% of the total iPhone sales in the US during the third quarter. The iPhone XR was the company’s top-selling device and accounted for 36% of sales.

The company will likely launch a low-cost iPhone SE 2 in March 2020. Ming-Chi Kuo, a noted Apple analyst, expects mass production for the device to start in January 2020. The iPhone SE 2 will be Apple’s lowest-priced smartphone. Notably, the iPhone should drive sales in India and Southeast Asia.

While Apple’s low-cost devices might hurt the bottom line, its Services growth is a high margin business and will offset the decline.

Apple stock trading at record highs

Currently, the shares are trading at $247.63. The company is valued at $1.12 trillion, according to the market cap. The stock has risen more than 56% year-to-date. Apple has been the top performer in the Dow Jones Index.

Recently, analysts and investors have been optimistic due to iPhone 11 smartphones and expected growth in the Services segment. The stock might zoom past $250 if the company posts a strong forecast for fiscal 2020.