Here is the full interview.
Financial Snapshot: AAPL ($131.47)
Rev/EPS forecast – Revs $54.0bn (+44% y/y), EPS $1.90 (+48% y/y)
Valuation: P/E 14.5x FY15 EPS (0.63x PEG ratio), AAPL shares attractive as strength of product portfolio broadening with successful launch of Apple Watch.
AAPL – iPhone6 Upgrade Cycle In 2Q15 Undented By PRC Stock Market Meltdown, Look For Shipments To Reach 50mm With iPhone6+ Mix Driving Margins Higher:
Concerns that AAPL sales suffered in 2Q15 from the PRC stock market meltdown are misplaced as only a small number of households have exposure. Meanwhile, note that PRC 4G subscription growth has remained strong as the move to higher-speed LTE wireless networks is still unfolding, a factor supporting iPhone6 demand. In broader terms, the iPhone6 upgrade cycle may be expected to boost the current iPhone installed user base of 404mm to 650mm by 2018, a penetration that will represent only 33% of the estimated 1.82bn premium smartphone subscribers. Meanwhile, the popularity of the higher margin iPhone6+ is expected to drive gross margin expansion.
AAPL – Apple Watch – Expect 15mm Units Sales in FY15:
While still early in its launch cycle, indications that AAPL’s supply chain is gearing up to meet initial demand of 20mm units bodes well for unit shipments over the balance of FY15. We look for 15mm units to be sold to customers over the balance of this fiscal year.
AAPL – Risks To Continued Stock Appreciation Few To Be Seen:
At present, AAPL shares continue to show signs of being well-positioned to deliver continued steady appreciation. Product portfolio is broadening in a profitable manner, share of product end markets still remains relatively low, and the prospect of expanding into large and significant new markets exists (i.e. Apple Auto). While AAPL is the single largest market cap company globally, the company enjoys a significant role as one of the leading companies in the technology platform that will drive global economic growth over the next decade, namely the continued deployment of internet-enabled smart devices. As long as AAPL sustains its leadership position, we expect the shares to provide investors with a core long-term holding.
AAPL – iPhone6 Upgrade Cycle & Apple Watch Launch Should Sustain Growth Rate & Bolster Valuation:
With AAPL presently enjoying positive product cycle dynamics across its portfolio, investors should be encouraged that management’s ability to build the company beyond the iPhone offering is be affirmed. As investors discount the emergence of a more balanced growth company, valuation can expand from the current price-to-earnings-growth (PEG) multiple of 0.63x to 0.85x, which would result in a share price of $180, a 37% gain from current levels.
Financial Snapshot: MSFT ($46.79)
Rev/EPS forecast – Revs $22.1bn (-6% y/y), EPS $0.58 (+5% y/y)
Valuation: P/E 19.3x FY15 EPS (5.2x PEG ratio), MSFT shares are clearly pricing in benefit from restructuring and positioning towards cloud computing.
MSFT – FY15Q4 Will Provide Some Major Charges, So Parse Numbers Carefully:
MSFT has communicated its fiscal Q4 report will be presented on a pro-forma basis, which means that the impact of giving away software (i.e. Windows10) won’t be in the number the Street looks at, nor will the $7.6 billion non-cash charge MSFT announced last week to write down the goodwill to its smartphone unit.
MSFT – CEO Nardella Conducting Major Surgery To Business Model To Position For Future Growth:
With the traditional PC business in outright contraction as mobile devices now dominate industry shipments, MSFT is making radical changes to its business model as the give-away of Windows10 operating system software confirms. Meanwhile, MSFT is cutting staff and reallocating resources towards its cloud computing efforts to position itself for future growth.
MSFT – Company Has Resources To Make Succesful Transition, Continue To Own:
While MSFT share valuation is elevated relative to its EPS growth rate, we expect as the restructuring steps take hold that EPS will rise considerably, especially as MSFT continues to shrink its share base while accelerating revenue growth by concentrating its efforts on high-growth “cloud” computing initiatives. We have a $54 price target, a 16% gain from current levels.