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Citigroup Remains Aggresive Buyers of Apple, Top Pick of 2010

Citigroup equity research issued a note to clients early Wednesday providing an earnings preview for Apple which they entitled “4CQ09 Earnings Preview: Yet Another Very Strong Quarter.”

Citi said they “remain very comfortable with our above-consensus 4CQ09 revenue estimate of $12.4B (vs. consensus of $12.0B and guidance of $11.3-11.6B) due to very strong holiday sales of iMacs and iPhones. Indeed, we believe revenue could exceed our estimate thanks to iPhone and favorable product mix. We reiterate our GAAP EPS estimate of $2.18, which is well above consensus of $2.05 and mgt guidance of $1.70-1.78, and see potential upside to $2.20-2.25.”

Other earnings drivers Citigroup cited included strong gross margins of 36.0% vs. consensus of 35.6% and guidance of 34%, despite rising DRAM and NAND pricing.

In addition, their checks suggest likely upside on Mac, iPod, and iPhone unit estimates for the quarter (currently 3.3 million, 22 million and 8 million, respectively). Citi said the see the most significant upside vs. their estimates to come from the iPhone, where their checks indicate that over 10 million units were built during the quarter.

However, Citi expects “typical caution on guidance” from Apple management, modestly below consensus due to lack of significant product refresh activity in the first quarter of 2010.

Citigroup concluded, “2010 should be a banner year for new products from Apple, starting with the introduction of a touch-screen tablet next week, continuing with laptop refreshes in April/May and a “world phone” in June/July, and culminating in the normal iPod refresh in September. While consensus iPhone estimates seem conservative given potential for several large new carrier partners in 2HCY10, the sell-side has little or no contribution from the tablet in estimates at this point, by our analysis. Our sensitivity points to 5-20% upside to consensus EPS estimates from the tablet alone this calendar year. We remain aggressive buyers of AAPL shares.”

Citigroup reiterated its Buy rating and $250 target price on shares of Apple.