Apple Set to Open at Record High as Analysts Laud ‘Blow Out’ Results
Analysts were particularly positive on growth in China, as well as the outlook for the second quarter.
(Bloomberg) -- Apple Inc. shares rallied on Wednesday, with the stock extending a recent advance into record territory after its first-quarter results validated the growing optimism among analysts that demand for the tech giant’s iPhones would endure.
Wall Street was particularly positive on growth in China, as well as the outlook for the second quarter. In another potential catalyst, Apple is reportedly preparing to launch a new low-cost iPhone model and a 5G-enabled device later this year.
These factors helped to offset the slightly disappointing performance of Apple’s services division, as well as uncertainty related to the coronavirus outbreak in China, which prompted a wider-than-usual sales forecast.
The shares rose as much as 3%, hitting an all-time intraday record. Over the past year, the stock has more than doubled, far eclipsing the rise of the S&P 500.
Here’s what analysts are saying about the results:
Maxim Group, Nehal Chokshi
(Upgraded to hold from sell)
The results and outlook show that iPhone units are “growing with no deceleration, nullifying our core reasons for a Sell rating.”
The iPhone strength is “more than offsetting [the] modestly below consensus Services, Mac & iPad” divisions. The overall revenue trajectory “continues to accelerate,” while the outlook implies that “iPhone strength will sustain while AirPods Pro supply catches up to demand.”
JPMorgan, Samik Chatterjee
(Overweight, price target raised to $350 from $300)
This was a “wow quarter,” as Apple “pleasantly surprised investors on multiple fronts, but most importantly materially exceeded investor expectations on iPhone revenues.”
The iPhone upside results in “higher confidence in strong demand for 5G enabled iPhones expected to launch later this year, as well as demand in the emerging markets for a more value-end iPhone.”
BofA, Wamsi Mohan
(Buy, price target raised to $350 from $340)
While services revenue was a little below expectations, “the iPhone installed base is growing and significant penetration of Services usage is still to be realized.”
Credit Suisse, Matthew Cabral
(Neutral rating, price target raised to $290 from $275)
The “very strong” quarter is “clearly a positive,” although “a fair amount of this was likely priced in” given the stock’s recent strength.
The services business showed slight deceleration in growth and was weaker than expected. While the magnitude of the miss was “slight,” the business is “key to the [long-term] bull thesis and is often cited as a driver of multiple expansion.”
Wells Fargo Securities, Aaron Rakers
(Equal-weight, price target raised to $315 from $245)
“Apple handily beat iPhone expectations”; the combination of “strong trade-in activity and Apple’s reduced pricing strategy coupled with an aged installed base is paying off.”
The coronavirus is a “rapidly evolving unknown.”
Cites valuation as a concern. “While Apple’s recurring services growth has driven multiple
expansion, we are more cautious on further expansion.”
RBC Capital Markets, Robert Muller
(Outperform, price target raised to $358 from $330)
“A lot to like,” with growth in China following four quarters of year-on-year declines. While service revenue was slightly below consensus, it still grew at an “impressive” 17% rate.
Notes 75% of Watch purchases were new customers, which should further lock customers in the ecosystem and thus be positive for future iPhone sales.
Report more than justified renewed optimism surrounding the core iPhone business with results “well ahead” of expectations ahead of the start of a potential 5G super cycle.
Morgan Stanley, Katy Huberty
(Overweight, price target $368)
Second-quarter gross profit guidance is 5.5% above consensus, the biggest delta since the March 2011 quarter, and the fourth quarter in a row of better gross profit guidance.
Strong iPhone demand to continue as Apple expands price points with a lower-priced iPhone launching in March and 5G in September.
Services slowdown is not a structural concern, and likely explained by year-on-year declines in the amortization of the deferred value of Maps, Siri and iCloud services.
Wedbush, Dan Ives
(Outperform, price target $400)
A “blow out print” that will “put more high octane fuel in the bull thesis,” as iPhone 11 strength continues both domestically and internationally, with China a “clear star of the show.”
Main highlight is second-quarter guidance of $63.0 billion to $67.0 billion versus consensus $62.5 billion, amid pent-up demand within the installed iPhone base.
“A major feather in the cap for the bulls that should drive the stock higher over the coming weeks and months.”
Cowen, Krish Sankar
(Outperform, price target raised to $370 from $350)
IPhone growth was driven by the model 11 product cycle and the trade-in and financing programs that are now available in more regions, while the 5G cycle could drive 2020/21 units back above 200 million.
Greatest near-term risk is the impact of the coronavirus on daily life in China. App store activity will be a key metric to monitor in coming months.
Cash flow was impressive, near a five-year high, leaving ample room after shareholder returns to invest in future growth.
--With assistance from Sam Unsted, James Cone and Lisa Pham.
To contact the reporters on this story: Kit Rees in London at krees1@bloomberg.net;Joe Easton in London at jeaston7@bloomberg.net;Ryan Vlastelica in New York at rvlastelica1@bloomberg.net
To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Steven Fromm
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