Wells Fargo Says Apple's Capital Allocation 'Just OK'

In a report published Tuesday, Wells Fargo analysts maintained a Market Perform rating on

, after the company reported its quarterly results. Apple reported its results for the quarter ahead of investor expectations. The analysts mentioned, however, that the company's capital allocation program was in-line and is "unlikely to increase on an annualized basis without more material debt raises." The company guided to revenue of $46-$48B, implying an EPS midpoint of ($1.66). This was lower than what the analysts had anticipated. In the report Wells Fargo noted, "The big catalysts of the Apple Watch, capital allocation, and big quarter are now behind us. With tougher comps coming (December quarter comps will be nearly 48% yr/yr), signs of lower value of the incremental new user (lower store revenue/unit, foreign exchange (FX) adjusted), generally lower units/carrier in an S cycle, Watch constraints, and iPad softness, we maintain our Market Perform rating." The EPS estimates for FY15 and FY16 have been raised from $8.58 to $9.01 and from $8.86 to $9.27, respectively. The valuation range has been adjusted from $120-$130 to $125-$135. "Compelling & innovative new products, better than expected gross margins, aggressive capital allocation are key upside risks. Operator subsidy reductions, mis-step in product cycle, legal disputes, and greater than expected gross margin pressures are key downside risks," the report added.