Danely, who has a Neutral rating on the stock, raised his price target to $66 from $55 after raising his estimates based on the apparent win. Apple is broadly expected to unveil the next model, presumably the iPhone “6S,” in September.
Danely doesn’t say how he comes by the knowledge, but he offers an assessment of how it could add new revenue for Analog Devices:
We believe Analog Devices has secured a design win in the next generation Apple iPhone. …could contribute $0.10, or 3%, of C16 EPS. Our analysis indicates the design win could contribute $160.0 million, or roughly 4% incremental C16 revenue, and $0.10, or roughly 3% of incremental C16 EPS. We are assuming operating margins of 23.5% on the design win, lower than overall C16 operating margins of 32.4% as margins from high-volume consumer products and large customers such as Apple are lower than high-performance analog products for industrial applications. We estimate the design win in the next generation iPhone would contribute $160.0 million, or roughly 4% incremental C16 revenue, and $0.10, or roughly 3% of incremental C16 EPS.
Danely raises his fiscal 2015 estimates to $3.32 billion and $2.86 per share in net income from $3.32 billion and $2.85. For 2016, he now models $3.58 billion and $3.06, up from $3.41 billion and $2.98. His 2017 estimates go up as well.
Despite the lift, Danely is cautious about betting on Apple’s bsuiness because the smartphone giant is notorious for switching suppliers:
Although the design win should boost revenue and EPS in a meaningful and material way for ADI, we have a lot of concern on the long term quality of the revenue stream given Apple is notorious for giving and taking away large design wins. We would note ADI has previously had large design wins with Apple that ended abruptly and resulted in downside to Consensus estimates and the stock selling off, as has Linear Technology.