FBR's Daniel Ives Defends Apple, Says 'Buckle The Seat Belts'

• Apple Inc. (NASDAQ: AAPL) shares have declined 18.92 percent over the past six months, dropping to a low of $96.45 on January 7.
• FBR’s Daniel H. Ives has maintained an Outperform rating on the company.
• Heading into the “much anticipated” FY1Q16 earnings report, scheduled for January 26, Ives believes that concerns regarding weakening iPhone guidance for the March quarter are rising.

Analyst Daniel Ives expects Apple to report generally in-line results for F1Q16, with over 75 million iPhone units shipped, investors are likely to be more focused on the March/June guidance and CEO Cook’s comments regarding China.

“It has been a "perfect storm" for Apple investors over the past few months as the combination of softer 6s demand, negative China headlines, and back-end loaded Apple Watch growth trajectory has seemingly catalyzed many on the Street to throw in the white towel on this name until demand improves,” Ives stated.

Related Link: Gene Munster Cuts iPhone Estimates By 10%

However, Ives believes that China iPhone demand has been strong and “holding up well,” with the U.S./EMEA sales proving to be the Achilles’ heel for the 6s cycle. In addition, Asian supply chain data and Apple store checks indicate continued weakness heading into the March quarter.

Ives also believes that “Cook and Cupertino could rip off the Band-Aid with a softer March guide and implied June guidance,” while iPhone 7 demand could lead to more than 240 million iPhone units in FY17, with the company returning to mid to high single digit growth.

Once there is greater clarity regarding the FY1Q16 results and the FY2Q guidance, Ives believes that shares would be rerated higher by the Street in anticipation of the iPhone 7 demand later in the year, along with improving Apple Watch sales in 2016.

“We strongly believe that while not in Apple's typical gold-standard playbook over the years, Cook & Co. could look to do some larger, strategic technology acquisitions to further broaden the company's consumer/enterprise footprint in 2016,” Ives added.