With Apple Inc. (NASDAQ: AAPL) earnings on the horizon, analysts are gearing up in anticipation. Most analysts have a very positive view for this earnings report, as well as for the future of Apple. However, what do analysts on the conservative side have to say? Wells Fargo is taking a cautious approach in viewing Apple’s future, and here is what the firm had to say.

Wells Fargo’s Maynard Um has a Market Perform rating for Apple and a valuation range of $125 to $135. This rating was issued because the firm saw difficult comparable sales (comps) approaching, uncertainty into the next iPhone S cycle, iPhone margins likely closer to peak and limited new large carriers to add at launch.

However at the same time, the brokerage firm also raised its estimates for the fiscal third quarter to $1.85 in earnings per share (EPS) on $50.2 billion in revenue from $1.79 in EPS on $48.8 billion in revenue. The consensus estimates are $1.81 in EPS on $49.31 billion in revenue.

Wells Fargo believes upside could be driven by strength in the iPhone as well as Macs. It sees limited upside to gross margin at 39.7%, even on a better iPhone mix due to warranty accruals.

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In terms of the iPhone upside, Wells Fargo detailed in its report:

We raise our fiscal third quarter iPhone sales to $30.8 billion on 50.1 million units from $29.6 billion/48.2 million, above Street’s $29.8 billion/47 million units. We think unit upside could be driven by the 25 carriers added in the quarter (Vodafone India being the largest one… We are comfortable with our average selling price (ASP) of $615 (up 9.6% year over year). We believe gross margin upside in this S-cycle may be offset by increased bill of materials and potential pricing actions at the lower end.

As for the other segments, Wells Fargo gave its estimates for Mac sales as $5.9 billion on 4.9 million units, compared with the consensus estimates of $5.8 billion in sales on 5.0 million units. The firm expects watch sales to equal $640 million on 2 million units at an ASP of $320, while consensus estimates see sales of $1.9 billion on 4 million units at an ASP of $488.

Wells Fargo described its investment thesis for Apple as:

We believe the positives of the current 6 cycle and perception as a relatively defensive stock to be offset by gross margin pressures and secular issues as it relates to a limited market cap opportunity in the existing product segments, and a potential balance of power shift back to wireless operators from handset vendors.

Shares of Apple were down 0.6% at $131.28 on Tuesday afternoon ahead of earnings. The stock has a consensus analyst price target of $149.28 and a 52-week trading range of $93.02 to $134.54.

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