+ 2.69
+ 1.88%

Apple's Q1: Here's The Bottom Line

February 1, 2017 1:51 pm
Share to Linkedin Share to Twitter Share to Facebook Share to Print License More

Apple Inc. (NASDAQ:AAPL)’s fiscal first quarter results were released after Tuesday’s market close and investors cheered the results and pushed the stock higher by around 5 percent.

According to Maynard Um of Wells Fargo, Apple’s report contained a combination of good and bad, which prompted the analyst to maintain a Market Weight rating with a valuation range boosted to $110 to $125 from a previous $105 to $120.

The Good

  • Apple’s 78.3 million iPhone units and average selling price of $695 were ahead of the analyst’s estimates of 78.0 million and $685, respectively.
  • Apple’s fiscal second-quarter revenue and gross margin guidance is ahead of the current low investor expectations but below consensus estimates.
  • Service revenue of $7.2 billion grew 18 percent year-over-year and exceeded the analyst’s estimate of $6.9 billion.
  • Management reiterated its prior view that its Revenue segment will be the size of a Fortune 100 company which implies at least $28.0 billion in revenue.
  • Mac revenue saw year-over-year growth for the first time since the last quarter of 2015.
  • Apple saw record revenue in all major region except Greater China although mainland revenue in China was flat year-over-year and up 6 percent in a constant currency basis.

The Bad

  • Q1 EPS was partially offset by lower gross margins.
  • Apple expects foreign exchange rates to impact Q2 revenue and gross margins.
  • Management’s gross margin guidance range was widened to 100 basis points versus 50 basis points historically.
  • iPad units of 13.1 million fell short of the analyst’s estimates of 15.7 million.
  • Growth from China isn’t expected to be dramatically different year-over-year in Q2 versus Q1.
  • Management’s guidance implies operating margins will be down on a year-over-year basis for the sixth straight quarter.

The Analyst’s Bottom Line

“We recognize that potential tax reform, incl. a cash repatriation holiday, could help AAPL’s capital allocation program in Apr. (though it’s unclear if repatriated cash will be allowed to be used for share repos, dividends, debt repayment, etc; it was not in 2004),” Um argued.

“This, as well as investors’ views for an iPhone 8 “super cycle”, regardless of our view that expectations are too high, is likely to limit downside risk near term. We raise our F17 EPS to $9.01 from $8.83 and adjust our valuation range to $110–$125 (13x C17) from $105–$120 but maintain our Market Perform rating as we see these as offset by uncertainties around off-cycle demand, June guide, and litigation.”

For the latest in financial news, exclusive stories, memes follow Benzinga on Twitter, Facebook & Instagram. For the best interviews, stock market talk & videos, subscribe to our YouTube channel.

Related Articles

3 Key Building Blocks Of Apple's Health Care Quest

Apple Inc (NASDAQ: AAPL) has forayed into the healthcare sector in a small way, with health features in its products and apps. read more

At War With Apple, Facebook Likely Setting Bigger Sight On Augmented Reality Dominance With Smartwatch Launch, Says Analyst

Facebook Inc’s (NASDAQ: FB) anticipated smartwatch launch in 2022 could be its gateway to gain on the next mobile computing platform — augmente read more

Qualcomm CEO-Elect Cristiano Amon Speaks At BofA Securities Event: Why Is An Analyst Bullish?

An analyst at BofA Securities came away bullish from a virtual event it hosted for QUALCOMM Inc. (NASDAQ: QCOM). read more

Apple Will Find It Hard To Recover From Fallout Over App Store Policies, Says Bill Gurley

Apple Inc. (NASDAQ: AAPL) would not have ended up “in the mess” it is currently in if the tech giant had implemented a 10% commission on in-app purchases, according to Silicon Valley investor Bill Gurley. read more