“Apple Inc. [AAPL] was upgraded to an outperform rating by BMO Capital Markets on Wednesday morning following the company’s third fiscal quarter report, which beat Wall Street’s estimates despite a drop in earnings,” Dan Gallagher reports for MarketWatch.

“In a note to clients, analyst Keith Bachman cited the company’s gross margin guidance of 36%-37% for the current September quarter as the main driver of his upgrade,” Gallagher reports.

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“‘While we still have some concerns about December quarter margins, we believe that the September-quarter gross margin guidance plausibly supports our view that the new mid-range iPhone will be in the $450 price range with approximately 38 per cent to 40 per cent gross margins,’ he said in a research note,” Darcy Keith reports for The Globe and Mail.

“Apple’s earnings beat was largely attributed to stronger-than-expected iPhone shipments of 31.2 million,” Keith reports. “Mr. Bachman, for instance, only expected 29 million.”

BMO had downgraded Apple to a “market perform” rating in April, and today’s upgrade was made simultaneously with BMO lowering its earnings forecasts for Apple for fiscal years 2014 and 2015. It now sees EPS of $40.25 in 2014 (from $42.67) and $44.14 (from $46.69) in 2015,” Keith reports. “Mr. Bachman explained that BMO underestimated the negative sentiment for the stock at the time of the downgrade – which, in a contrarian sense, actually meant Apple stock had greater potential than the bank had thought. ‘We think investor sentiment is very negative, or cautious on the long-term prospects on AAPL. We think many accounts have little to no exposure to AAPL share,’ Mr. Bachman said. ‘We likely underestimated this sentiment at the time of our downgrade, which in our opinion means the stock has more upside potential than we had figured… With almost a 3 per cent dividend yield, we think AAPL stock will find support, and not trade below $395.’”

Keith reports, “Mr. Bachman has a $480 price target.”

Read more in the full article here.

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