Apple's Path To $2 Trillion Is Set As Wall Street Lauds Resilience, Ecosystem Engagement

Apple Inc. AAPL reported solid results for the fiscal third quarter, sending its shares to record territory. The stock was jumping 7% to $411.47 at the time of publication.

The Apple Analysts

Credit Suisse analyst Matthew Cabral maintained a Neutral rating on Apple and increased the price target from $340 to $380.

UBS analyst Timothy Arcuri maintained a Buy rating and lifted the price target from $400 to $425.

Morgan Stanley analyst Katy Huberty named Apple as the firm's top pick. The analyst maintained an Overweight rating and hiked the price target from $419 to $431.

Needham analyst Laura Martin maintained a Buy rating and $450 price target,

Raymond James analyst Chris Caso reiterated an Outperform rating and hiked the price target from $400 to $440.

Wedbush analyst Daniel Ives maintained an Outperform rating and raised the price target from $450 to a Street-high $475.

‘We Underestimated Apple's Resiliency': Apple delivered very impressive June quarter results, with the upside, broad-based across product portfolio despite the COVID headwinds, Cabral said.

Delving on the positives, the analyst said iPhone was a standout to the upside, thanks to strong uptake of the lower-priced iPhone SE priced at $399. Improved trajectory in May and June across all products, sharp acceleration in iPad and Mac, and strong Services gross margin expansion were also positives.

"We've clearly underestimated the resiliency of Apple and the relative importance of their wallet share for consumers amid a more challenging macro backdrop," Cabral wrote in the note.

UBS Sees Strong iPhone Upgrade Cycle In 2021: Post-COVID-19 recovery and economic stimuli helped Apple deliver a solid quarter, Arcuri said. Mac and iPad saw particular strength due to work-from-home and remote learning.

Product gross margin was soft but margins of the Services business, which now accounted for about 40% of gross profit, remained strong.

Apple's confirmation of iPhone launch delay by a few weeks compared to typical September-end supports the narrative of strong upgrade cycle in 2021, the analyst said.

See Also: Loup Ventures Revisits 2020 Tech Predictions: Apple As The FAANG Leader, Tesla Delivery Beats And More

Apple Is An Ecosystem, Not Just Product Cycle Story: With ecosystem engagement rising, Apple grew revenue in every segment and geography, Huberty said. While iPhone and Wearables spend was impacted by retail store shutdowns, computing demand supported robust iPad and Mac growth and digital services growth accelerated.

Heading into 2021, the analyst sees even more robust trends, as iPhone and Wearables growth rates re-accelerate.

What Needham Liked The Most: Apple's four-for-one stock split, installed base of active devices reaching all-time highs, record June quarter Services revenues and paid subscriber growth to 500 million as of June 30 were the things Needham liked the most.

Although Apple did not give any specific revenue or margin guidance, it expects strong iPhone unit sales to continue, driven by 0% financing and trade-ins, strong SE sales momentum and the continuing strength of iPhone 11, the analyst noted.

"We believe that the SE is growing AAPL's installed base of unique users, while the 11 is raising APPL's avg ARPU," Martin wrote in the note.

Services revenues, which rose 15% year-over-year to $13.16 billion in the third quarter, are likely to grow Apple's ecosystem in several ways.

The 2-Year Upgrade Cycle A Catalyst: Apple's earnings report doesn't significantly change Raymond James' view of the second half or the upcoming 5G iPhone ramp.

"And since we believe this to be the very beginning of a 2-year upgrade cycle we think that can remain a catalyst for estimates and the stock," Caso wrote in the note.

Apple Will Be The First $2T Stock In 2021: Given the 5G tailwinds and Services momentum, Apple will have the first $2 trillion valuation in 2021, Ives said. With demand snapping back in China, the stage is set for a massive pent up iPhone 12 cycle, heading into the Fall in the key China region as well as globally.

"From a demand perspective, we estimate that ~350 million of Apple's 950 million iPhones worldwide are in this upgrade window which remains the linchpin to our longer-term bullish thesis and 5G super cycle for Cupertino over the next 12 to 18 months," he wrote.

Apple On Track to $500 And Beyond: Apple's numbers reveal a company that is best positioned among big tech to reaccelerate revenue growth over the next year and sustain that high growth for the following two years, Loup Ventures' Gene Munster said.

Beyond the multi-year 5G cycle, Apple has dependable revenue tailwinds from avenues such as digital health, working and learning from home, services, and autonomy.

Apple's cash position and product roadmap put its shares on a path to reach $500 and well beyond in the years ahead, according to Munster.

Posted In: Chris CasoCredit SuisseDaniel IvesGene MunsterKaty HuberyLaura MartinLoup VenturesMatthew CabralMorgan StanleyNeedhamRaymond JamesTimothy ArcuriUBSWedbushAnalyst ColorEarningsLong IdeasNewsGuidancePrice TargetReiterationTop StoriesAnalyst RatingsTechTrading Ideas