Market Overview

Apple Services Segment Continues To Exceed Expectations

Apple Services Segment Continues To Exceed Expectations
Related AAPL
Consumer Discretionary Q4 Earnings: U.S. Consumer Appears Strong Amid Heightened Global Uncertainty
Apple Bull Weighs Impact Of Taiwan Semiconductor Guidance Cut, Battery Replacement
Apple Pay comes to Target, Taco Bell (Seeking Alpha)

Apple Inc. (NASDAQ: AAPL)'s Services segment stood out in the company's fiscal fourth-quarter earnings on Thursday, KeyBanc's Andy Hargreaves said in a report.

Coupled with strong expectations for the iPhone X, the analyst maintains an Overweight rating on Apple's stock with a price target boosted from $187 to $192.

In fact, Apple's Services segment exceeded expectations, even when factoring in a one-time $640 million benefit the company realized in the quarter, Hargreaves said. Total revenue from the segment rose from $6.3 billion in the same quarter a year ago to $8.5 billion. But as many would expect this rate of growth can't be sustained over time and is expected to slow to 23 percent in fiscal 2017 and then dip to 10 percent growth in fiscal 2018.

Nevertheless, the strong performance seen in the Services segment during the quarter is reason enough to justify a higher multiple on Apple's stock from 8.5x EV/EBITDA to 9.0x.

iPhone X Ahead

Beyond the Services segment, expectations for an iPhone X supply constraint in the fiscal first-quarter prevents investors from getting a "clean view of normalized demand" but should still prove to be a "favorable dynamic" for Apple, Hargreaves wrote. On the other hand, a ramp in iPhone supply through the fiscal first quarter could create a headwind as investors may view this as a sign of underperforming demand for the high-end smartphone.

"We recommend owning AAPL," the analyst said. "The Company continues to drive excellent services growth, which creates a more stable profit pool than hardware, and appears well positioned to increase gross margins through FY18."

Related Links:

Apple Is A Buy, Even If You Have Doubts About The iPhone

Tim Cook Explains How Apple Services Is On Track To Be The Size Of A Fortune 100 Company

Latest Ratings for AAPL

Jan 2019CitigroupMaintainsBuyBuy
Jan 2019NomuraMaintainsNeutralNeutral
Jan 2019Canaccord GenuityMaintainsBuyBuy

View More Analyst Ratings for AAPL
View the Latest Analyst Ratings

Posted-In: Andy Hargreaves Apple Services iPhone iPhone DemandAnalyst Color Price Target Analyst Ratings Tech Best of Benzinga


Related Articles (AAPL)

View Comments and Join the Discussion!

Latest Ratings

PANWBMO CapitalUpgrades240.0
UAAGoldman SachsUpgrades28.0
GPSGoldman SachsDowngrades0.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Here's Why Tesla Could Withstand The Shock Of Losing The EV Credit

30 Stocks Moving In Friday's Pre-Market Session