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Here's How Wall Street Investors, Analysts Felt About Apple's Q1 Earnings

Here's How Wall Street Investors, Analysts Felt About Apple's Q1 Earnings

The strong first-quarter results made Apple Inc. (NASDAQ: AAPL) sweet again for investors, with several points to cheer — including return of iPhone growth and continued solid performance in the services unit.

Apple reported 78.3 million in sales of iPhone units for the quarter ended December 2016, beating Street expectations of 77.4 million.

In addition, Apple reported 18 percent growth in services business to $7.2 billion, beating Street expectations of 17 percent growth. CEO Tim Cook said he expects this business to double in the next four years that would make the segment account for about 25 percent of revenue.

However, Apple guided second-quarter revenue of $51.5 billion–$53.5 billion, slightly below consensus expectations, and included a currency headwind of $1.2 billion.

Wall Street welcomed the results with both hands, while investors have ignored the lower-than-expected revenue outlook as they are confident about success of future iPhones.

From The Desk Of Gene Munster

Famed Apple analyst Loup Ventures’ Gene Munster said the results indicate “the company is driving towards a future where natural user interfaces (e.g., Augmented Reality) replace the smartphone as the dominant computing platform.”

Munster mentioned that Apple is innovating towards an Augmented Reality future and is focusing its efforts on the Services business, which will be “increasingly important” once smartphones cease to be the primary computing platform.

Baird's Perspective

Baird’s William Power, who reiterated his Outperform rating and raised the price target by 12 to $145, said investor focus will likely “shift almost entirely” to iPhone 8 and the stock seems “ripe for picking” ahead of the upcoming cycle.

BMO's View

BMO’s Tim Long said Apple's growth in the services will be "an important part of the story" given the now stronger than expected growth rate relative to expectations heading into Tuesday's earnings report. Long rates Apple shares Outperform rated with a price target of $142.

Credit Suisse's Commentary

Credit Suisse reiterated its Outperform rating and sees solid risk/reward for Apple. Analyst Kulbinder Garcha expects an iPhone 8 super cycle and sustainable free cash flow of about $67 billion over long-term, given high retention rates, a superior ecosystem, and a multi-product compute advantage.

Wells Fargo's Response

That said, Maynard Um of Wells Fargo observed that Apple's report contained a combination of good and bad, which prompted the analyst to maintain a Market Weight rating.

“We see uncertainties around off-cycle demand, June quarter guide, and litigation offsetting positives such as potential for tax reform and iPhone 8 ‘super cycle,’" Um wrote in a note.

Um sees a difficult road ahead for Apple due to the following:

    1. “iPhone 8 in Sept. being released in an S-cycle year (where many subscribers will be in year 1 of a two-yr contract).”
    2. “Tough comps in June (SE launch last year), Sept. (extra week post-iPhone 7 launch), and Dec (extra week in 2016).”
    3. “Gross margin pressures (fx, component costs, increased iPhone content).”
    4. “Uncertainty around royalty litigation.”

However, Um boosted the valuation range to $110 to $125 from $105 to $120 as investors’ views for an iPhone 8 “super cycle” is likely to limit downside risk near term.

Shares of Apple set a new 52-week high on Wednesday at $130.49. The stock closed Wednesday’s trading 6.13 percent higher at $128.79.

Latest Ratings for AAPL

Mar 2019Cowen & Co.Initiates Coverage OnOutperform
Mar 2019Bank of AmericaUpgradesNeutralBuy
Jan 2019Bank of AmericaReiteratesNeutralNeutral

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings Long Ideas News Guidance Price Target Reiteration Analyst Ratings Best of Benzinga


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