Apple: The Aftermath - Apple (NASDAQ:AAPL)

Apple Inc. AAPL reported its first quarter fiscal 2016 financial results after the market closed on Tuesday.

The tech behemoth delivered earnings of $3.28 per share, beating the Street’s consensus by $0.04, on revenue of $75.872 billion, falling short of expectations for $76.855 billion. Management confirmed iPhone sales grew at their slowest pace ever and guided of a decline in revenue for the second quarter of fiscal 2016.

Shares closed down 6.5 percent at $93.44.

Drexel Hamilton

Drexel Hamilton’s Brian White reiterated a Buy rating and $200.00 price target on the stock. He was glad to see the quarter end, adding that it was time to move on and “start to look forward to the ramp of iPhone 7.”

White also pointed out that the company’s 40.1 percent gross margin beat his estimate of 39.7 percent, while the 31.9 percent operating margin came in ahead of his forecast of 31.1 percent.

“Given the iPhone weakness in the late stages of this 6-Series, it is not surprising that Apple's 2Q:FY16 outlook is soft,” he continued, noting the iPhone 7 cycle is now on the horizon.

Canaccord

Canaccord’s T. Michael Walkley said Apple’s results were consistent with the firm’s estimates, and reiterated a Buy rating and $146.00 price target. The analyst attributed the “solid” results to robust iPhone sales and sustained growth in services. In fact, Apple sales would have surged 8 percent year-over-year in constant currency, but currency headwinds weighed on the results.

Despite his optimism, Walkley noted that “given the similar form factor for the iPhone 6S and softer smartphone global demand trends,” the firm anticipates “weaker and down year-over-year 1H/C2016 iPhone sales.”

Cowen And Company

Analysts at Cowen maintained a Market Perform rating and $125.00 price target on Apple. “With guide that was not as bad as some investors feared, the hardest compare is now on the tape,” the report assured. This, coupled with numbers that imply downside to only ~$90 make this a “relatively safe investment” at current prices.

However, they still see the company broadly immersed in a transition period. The firm is waiting for a new product cycle or market before they upgrade the stock.

FBR & Co.

FBR’s Daniel H. Ives reiterated an Outperform rating on Apple, while trimming his price target by $20.00 to $130.00 after the “better than feared” results. The results were overshadowed by guidance, which he believes was the main issue the Street was looking at.

“Cook finally ripped the band-aid off and lowered Cupertino's outlook based on softer 6s demand and a choppy macro,” Ives said. However, the forecast was not as bad as analysts expected.

“Clearly, Cook & Co. have a few tough quarters ahead until we get to the buildup around iPhone 7 later this year, which is what bulls (including ourselves) are focused on to turn this ship back into growth waters,” he said.

This is not the first time Apple faces such a situation, Ives said. However, pressure is building for the company’s CEO “to show success outside its core iPhone DNA to give investors confidence in a multifaceted growth story heading into the next few years via organic and potentially acquisitive means with $200 billion-plus of cash.”

Credit Suisse

Credit Suisse reiterated an Outperform rating and $140 price target. About the decline in iPhone sales growth, the analyst said: “We believe we now have a handle on the degree of GM erosion over this subdued iPhone cycle. This, we believe, provides a baseline CY EPS estimate of $8.92, meaning incremental downside risk is capped at ~$89.”

However, the company’s elevated retention rates, excellent ecosystem, multi-product compute advantage and an installed base of roughly 1 billion users, provide it with a sustainable, annuity type free cash flow of approximately $60 billion per year.

Barclays

Barclays also maintained an Overweight rating on Apple, but trimmed its price target by 5 percent to $142.00. Mark Moskowitz and his team pointed out that commentary about weak global economic conditions could be seen as an incremental drag.

Having said this, the analysts said there were no major surprises regarding the business model. Thus, their thesis remains unchanged: Apple is the firm’s Top Pick in the IT Hardware industry.

“Tough comps for iPhone to start the year and moderating build activity in the supply chain already had investors preparing for a softer trend-line,” they said. The firm pointed out that the next potential catalysts include the launch of iPhone 7 prototypes close to the end of the current quarter, expanded capital al location in the following quarter, and “the lapping of tough comps in 3 months.”

Brean Capital

Brean’s Ananda Baruah also maintained a Buy rating and $170.00 price target on Apple’s stock. She noted that the iPhone guide for the current quarter was “solid” considering the noise around it.

Having said this, the analysts “do believe that iPhone ASPs (blended) will decline in the Mar Q both Q/Q (~10%, or 2x typical Mar Q) and Y/Y (~5%, strongest decline in 2+ years) given 1) AAPL has “peaked” mixing up from the iPhone 6/6s cycle and 2) FX’s impact to ASPs given that AAPL generates 2/3rds of revenue outside the U.S., and there has been sustained FX devaluation relative to the USD $.”

While the analysts feel encouraged by the second quarter fiscal 2016 iPhone guide, they decided to maintain their estimate for 2016 at 210 million to 220 million units.

Deutsche Bank

Analysts at Deutsche Bank were not as bullish as many of their peers. The firm issued a Hold rating and $105.00 price target on shares, noting that while guidance came in-line with expectations, they're still concerned about iPhone units not surging this year, China sales slowing down and gross margins taking a hit from FX as the year goes by.

The analysts envision “limited catalysts for the shares in the near term, and expect the stock to be rangebound.” With Apple becoming a “recurring revenue story,” they expect the valuation to be reset, in line with other mature, services-type companies.

Bernstein

Bernstein reiterated an Outperform rating and $135.00 target price. “We believe that iPhone guidance may end up being modestly aggressive, given our ‘forces at work’ analysis,” analysts said. However, overall revenue and earnings guidance appears achievable.

They pointed out that even though guidance beat expectations, management “projected a much more cautious tone than is typical, repeatedly invoking the difficult macro backdrop and the meaningful currency headwind.”

“On net, investing in Apple requires an expectation that the iPhone business is fundamentally healthy, which despite falling units in FY 16, we believe is still the case,” they concluded.

Stifel

Analysts at Stifel noted that the iPhone guidance (commentary implied a low-50 million unit ship figure for the current quarter) was pretty much in line with what they expected, and reiterated a Buy rating. However, they reduced their target price by $20.00 to $120.00 to better reflect their model.

Oppenheimer

Oppenheimer analysts maintained an Outperform rating and $120.00 price target on the stock, assuring their 2016 thesis remains unchanged: “For a volatile tech sector in 2016, we believe cash-rich, dividend-paying, and attractively valued stock such as AAPL offer one of the best defensive positions for investors."

The firm said Apple's reported revenues and net profit broke a historical record. “Greater China sales remained strong with 14% Y/Y growth while emerging markets and Europe saw persisting FX headwinds,” they continued. Nonetheless, March guidance implied the iPhone's first quarter of year-over-year decline.

The analysts expect 2016 to be a “very challenging year due to macro headwinds in emerging markets and an elongated replacement cycle in developed markets.” However, they believe “growth potential in China and other emerging markets has not been fully realized and will help to strengthen AAPL's 1 billion device installed base.” Investors’ patience will bring rewards. It’s a matter of waiting until the company transitions to a recurring revenue-based model.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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