As Apple's (AAPL 0.17%) April 27 earnings report fast approaches, another analyst took the opportunity to raise estimates for the quarter. This time, via Barron's, we have Stifel Nicolaus' Aaron Rakers reiterating a "Buy" rating and a price target of $150 -- almost 16% higher than where the stock currently trades.
Rakers now thinks, citing supply chain checks and "consistent tracking of highly correlated macro data points," that Apple shipped 59.6 million iPhones in the most recent quarter, up from his previous estimate of 53.6 million. This is ahead of consensus, which reportedly sat at 55 million before Rakers' estimate revision. (Consensus will obviously move up as a result of Rakers' estimate hike.)
What's driving this?
The analyst says that iPhone 6/6 Plus sales "sold briskly in China," and even says that supply chain checks suggest that Apple suppliers are seeing continued strength. This is particularly noteworthy, the analyst suggests, because anticipation for a new iPhone model in the fall usually leads to a meaningful tapering off in demand.
To be clear, Rakers is leaving his June quarter iPhone shipment estimates unchanged, at 42.3 million units, but notes that "there is likely to be upside" to that estimate. Interestingly enough, a look at Apple's iPhone shipment results from the last fiscal year shows that Apple shipped 43.72 million units in the March quarter, and then 35.20 units in the June quarter. This implies a 19.5% sequential decline if my math is correct.
If Apple hits Rakers' estimate of 59.6 million iPhone shipments in the March quarter, then a similar 19.5% sequential decline to last year would imply nearly 48 million iPhone shipments in the June quarter.
Full-year estimates and capital-return update
Rakers revised his fiscal year 2015 estimates of Apple's revenue and earnings per share to $231.2 billion and $8.81 per share, respectively. This is ahead of consensus estimates, which sit at $226.59 billion and $8.69, respectively.
He also talked about his expectations on capital return. Rakers is looking for a big boost to the dividend up to $2.30 to $2.40 per share, up from the $1.88 per share annualized that Apple pays out today. He also thinks that, during the next three years, the company could return in excess of $150 billion to shareholders, with $110 to $120 billion of that coming from share repurchases alone.
Finally, Rakers pointed out that investors might view Apple's updated capital return program as a "hint" as to what kind of free cash flow the company expects to generate in the coming years, noting that Apple has generally paid out roughly 23% of free cash flow as dividends.
This is an interesting point, but it's important to keep in mind that, as Apple matures, it -- like many other mature technology companies -- could simply choose to allocate a larger percentage of its free cash flow to the dividend than it has in the past. This may be viewed positively from a "shareholder friendliness" perspective, but I would caution against using Apple's dividend payment as a reliable way to forecast Apple's future free cash flow.
Put bluntly, there's a reason why Apple only guides one quarter out: If Apple could predict its business performance one year out, let alone three years out, then I'd expect it would give full-year guidance. Instead, for very good reason, it guides just one quarter out.
