Return Of The iPhone: Sales Boost Apple, Keep Sell-Side Bullish

The iPhone is back.

Apple Inc. AAPL posted record revenue on a return to strength in sales of its signature smartphone, returning to profit growth in the first quarter after several quarters of slumping sales that had many wondering whether the iPhone had peaked and Apple might need to focus on selling other services.

But with the company's first-quarter report on Tuesday showing revenue up 9% in the December quarter to $91.82 billion, sell-side analysts' reactions were full of relief.

In addition to iPhone sales, which were up 8% to $56 billion, Apple also reported higher-than-expected subscriptions for its services, including its new streaming service.

See Also: Apple's Q1 Earnings Boosted By Strong iPhone, Services Sales

The Analysts

Morgan Stanley's Katy Huberty raised her 2020 EPS estimate from $12.50 to $13.55 but kept a target price of $368 on the stock, with an Overweight rating.

Wedbush analyst Daniel Ives kept an Outperform rating on Apple with a $400 price target.

Credit Suisse analyst Matthew Cabral remained Neutral on Apple but raised the target price from $275 to $290.

Wells Fargo's Aaron Rakers raised the target price from $245 to $315, but remained Equal Weight on the stock.

Bank of America's Wamsi Mohan reiterated a Buy rating and raised the price target from $340 to $350.

UBS analyst Timothy Arcuri increased estimates based on higher iPhone revenue, but kept a $355 price target on the stock, with a Buy rating.

Return Of iPhone Strength

Improvements to the new iPhone, particularly in the battery and cameras, clearly were a good thing for Apple and CEO Tim Cook, while wider financing options and more price points also helped boost sales, analysts said.

Those factors should continue to pace iPhone sales through the year, with a new catalyst coming in the second half as the company releases a 5G phone.

The return to strong iPhone sales, along with continued double digit growth in services and wearables, said Huberty, return Apple to its "three pillars of growth."

Strong Guidance

The company's guidance for continued strength was also welcomed.

The print will be seen positively on the Street, said Ives, noting iPhone's strength showed across the world, "with China a clear star of the show despite the noise," of trade tensions and the emergence of a new coronavirus epidemic.

"We would characterize these results and guidance as a 'blow out' print that will put more high-octane fuel in the bull thesis looking ahead," Ives wrote.

There were a couple of caveats.

Cabral acknowledged the strong quarter was "clearly a positive," but warned that much of the good news was likely already priced in, noting Apple's stock is up more than 30% over the last 90 days. Cabral also said investor attention was already now shifting toward the next potential catalyst, the launch of the 5G iPhone in the second half of the year.

Arcuri agreed that Apple may be expensive, especially relative to its own history, but "not relative to large cap technology stocks."

See Also: Cramer Regrets Not Having More Faith In Apple

Services Concern

While services revenue remained strong, it did come in slightly below consensus expectations. One of the reasons for that, posited Mohan: disruption from the unrest in Hong Kong, which kept China revenue growth to 3% year over year.

Still, while services revenue may have come in low, Rakers said it's worth noting Apple's subscriber base expansion, now expecting more than 600 million paid subscriptions by the end of 2020, up from previous expectations of 500 million.

Price Action

Apple's stock was trading up 3.1% to $327.55 per share at time of publication, an all-time high.