Apple's Q2 'One For Record Books': 6 Analysts Break Down iPhone Maker's 'Jaw Dropper' Quarter

Apple Inc. AAPL reported Wednesday with forecast-beating second-quarter results, and the stock is reacting with a move to the upside.

The Apple Analysts: Morgan Stanley analyst Katy Huberty maintained an Overweight rating and increased the price target from $158 to $161.

BofA Securities analyst Wamsi Mohan reiterated a Neutral rating and hiked the price target from $155 to $160.

Wedbush analyst Daniel Ives maintained an Outperform rating and lifted the price target from $175 to $185, with a bull target of $225. The analyst said Apple remains one of Wedbush's best ideas in 2021.

Jefferies analyst Kyle McNealy maintained a Buy rating and increased the price target for the shares from $160 to $175.

Raymond James analyst Chris Caso reiterated an Outperform rating and increased the price target from $160 to $185.

Needham analyst Laura Martin maintained a Buy rating and $170 price target.

Morgan Stanley On Apple's Revenue Trends: Strength across the portfolio and across regions combined with expected backlog growth in iPads and Macs speaks to sustained revenue trends which has been a key investor debate, Huberty said in a note.

Consensus estimates are likely to move toward Morgan Stanley's above-consensus EPS and revenue estimates for fiscal years 2021 and 2022, the analyst said.

The September quarter guidance will be an important proof point of demand sustainability and is therefore the next major stock catalyst, she said.

It will likely help drive the shares back toward a more appropriate platform P/E multiple in the low 30-times range, Huberty said. 

Related Link: Apple Analysts Recap 'Spring Loaded': Why Podcast Subscriptions Are 'Significant,' AirTags A 'Sleeper Hit,' iPad Pro Blurs Line Between Mac, iPad

BofA Concerned About Tough Comps For Apple: Despite supply constraints in several product lines, Apple reported strong revenue and margins, Mohan said in a note. 

The iPhone installed base continued to grow beyond 1 billion units and reached an all-time high, and iPhone revenue climbed 66% year-over-year, the analyst said. 

"The March quarter was the strongest quarter for iPhone upgrades, while demand from switchers to iPhone was also strong." 

The iPhone strength will likely continue into the June and September quarters, Mohan said. 

Comparisons will begin to get tougher starting in the December quarter, the analyst said.

Citing the risk-reward balance due to tough year-over-year comparisons and limited upside to already high gross margins, Mohan said he prefers to stay on the sidelines.

Wedbush Says Apple's Q2 One For The Record Book: Apple iPhone revenues beat estimates by over 17% in a "jaw dropping" performance, as an iPhone 12 super cycle is playing out, Ives said.

"We have seen many blow out quarters in our many years covering Apple, although last night's March quarter we would characterize as one for the record books in Cupertino," the analyst said.

Notwithstanding chip shortage remaining a headwind for the next few quarters, the new iPhone product cycle is enabling Apple to achieve its next level of growth and monetization looking ahead, he said.

"In a nutshell, we believe Apple is a name which will deliver robust numbers the coming year and a further re-rating, with iPhone 12 handing the baton to iPhone 13 in September as part of this multi-year 5G upgrade cycle."

Jefferies On Apple's Q2 Highlights, Catalysts: The Street underappreciates how Apple is positioned to benefit from the 5G product cycle that's underway, McNealy said.

The 66% year-over-year iPhone revenue growth, the 5% year-over-year ASP improvement, a record high iPhone installed base, 87% growth in China, 27% Services segment growth and 25% Wearable growth are among the positives, the analyst said.

"We're specifically encouraged by iPhone as the flywheel for the company generating attached Services, Wearables, and Accessories," he said. 

The catalysts for Apple's shares include an aging installed base of devices ready for a refresh, a potential turnaround in handset upgrade rates and carrier device subsidies, an industry marketing push behind 5G and expanded midrange offerings such as the iPhone SE, according to Jefferies. 

RayJay Says Apple Will Deliver On iPhone Unit Growth: Apple's strong quarterly results reflected the catch-up the company did with iPhone demand that couldn't be fulfilled in December quarter due to the later iPhone launch, Caso said. 

The Mac and iPad also delivered solid upside driven by work- and learn-from-home trends, the analyst said. 

Although the company didn't provide specific guidance for the June quarter, it suggested revenue would be down more than seasonally normal due to the abnormally stronger March quarter, he said.

While the iPhone 12 delivered a better mix and margins, as customers preferred higher-end models, this year will deliver the unit growth that didn't occur last year due to the pandemic and late launch, Caso said. 

"In our view, there's much more to come and we're only in the initial innings of Apple's 5G adoption cycle." 

Needham's Key Takeaways On Apple: Needham analyst Laura Martin mentioned the following as her key takeaways from the company's earnings call.

  • A parts shortage for Mac and iPad in June quarter implies a $3-billion to $4-billion headwind to revenue growth.
  • iPhone revenue mix shift toward iPhone 12 Pro+ and Pro Max drove product margins to 36% from 30% a year ago.
  • Store reopening is driving product revenue upside, which in turn will drive upside to accessory revenue and Apple Care.
  • Comps get easier for the next two quarters.
  • A majority of Apple Watch buyers were first-time buyers.
  • AppleTV+ subscriber numbers are likely to be low.
  • Apple introduced its ATT, replacing IDFA, this week, and is particular that iOS users have the right to decide if they want to be tracked.
  • Apple plans $430-billion investment over the next five years and to create 20,000 new U.S. jobs.

AAPL Price Action: At last check, Apple shares were up 0.1% at $133.71.

Related Link: 10 Things Apple Investors May Wish For In 2021

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Posted In: Analyst ColorEarningsLong IdeasNewsPrice TargetReiterationAnalyst RatingsTechTrading IdeasBofA SecuritiesChris CasoDaniel IvesJefferiesKaty HuberyKyle McNealyLaura MartinMorgan StanleyNeedhamRaymond JamesWamsi MohanWedbush
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