Apple's Services Growth, Stable IPhone Sales Calm Analyst Fears

(Bloomberg) -- Apple Inc.’s growth in services and wearables and its surprisingly solid iPhone sales calmed the overdone negativity going into the quarter, analysts say, and sent shares higher Wednesday.

Fears that iPhone orders were slowing proved unfounded as the more expensive iPhone X was Apple’s best-selling product through the quarter. Management comments suggesting the higher-end pricing strategy worked gave Goldman Sachs confidence to raise estimates on average selling prices to levels last seen in late 2017. Meanwhile, Morgan Stanley analysts are bullish on services after better-than-expected growth across regions and offerings.

Apple shares jumped 3.2 percent to $174.58 at 9:45 a.m. in New York. Suppliers including Cirrus Logic Inc., Skyworks Solutions Inc., Qorvo Inc. and Broadcom Inc. also rose.

Here’s a round up of what analysts are saying about the quarter.

Bernstein, Toni Sacconaghi

“Apple executives projected a bullish tone and Apple’s guidance for the June quarter was much better than expected, due to stronger iPhone units (close to normal seasonality), a healthier iPhone mix/pricing for third quarter vs second quarter and continued strength in services.”

“We emerge from Apple’s second-quarter results more constructive on the name, particularly in the near-term. Longer term, we struggle with recommending Apple as a core holding, and continue to see it more as a trading stock.”

“Apple repurchased its own shares aggressively in the quarter, which historically has been a good leading indicator for the stock.”

Maintains market perform, raises price target to $190 from $170

Goldman Sachs, Rod Hall

“Apple’s commentary suggests the higher-end pricing strategy worked as planned so we are pushing our OLED SKU ASP forecasts back up to the same levels seen in late 2017 ($999 starting price).”

“Services and other products delivered solid upside in the quarter with Apple’s wearables business (Apple Watch, Beats and AirPods) now >$9 billion LTM.”

The buyback authorization of $100 billion was in-line with expectations. Goldman believes efficiency as a driver of share price is declining.

Maintains neutral, raises price target to $164 from $159

Citi, Jim Suva

Removed Apple from the U.S. Focus List, which was added on February 1, as the stock has increased 5 percent vs the S&P 500 down 6 percent.

Citi is “convinced that sentiment on Apple stock in the past few weeks swung too far negative and the negative media news of order cuts added fuel to the negativism on the stock.”

Reiterates buy and $200 price target

Morgan Stanley, Katy Huberty

“Services growth acceleration headlined a better-than-expected quarter and guide. Even if smartphone replacement cycles continue to lengthen, we see Apple delivering 4 percent revenue and 16 percent EPS growth over the next three years with services the primary growth engine”

Reiterates overweight and $200 price target

RBC, Amit Daryanani

Apple’s report was “impressive” given all of the negativity.

“We think the stock will work higher from here” given second-quarter results and a third-quarter forecast that were “well ahead of investor fears.”

Maintains overweight and $203 price target

Loup Ventures, Gene Munster

“The iPhone business is becoming increasingly predictable, which should ease quarterly investor anxiety.”

“The services business is building muscle, up 31 percent y/y vs 18 percent y/y in December.”

“While the capital return update of $100 billion was inline with expectations, the theme of capital return will play a greater role in the future Apple story.”

Oppenheimer, Andrew Uerkwitz

“When asked about the source of service revenue momentum, Tim Cook mentioned that total paid subscriptions reached 270 million, up by 100 million from a year ago (implying addition of 30 million in the past quarter). Services segment growth will be Apple’s most effective tool to potentially offset the pressure from a stagnating handset market.”

“We do not know how much Apple benefited from a distorted Android release schedule in the past two quarters, when OEMs postponed their releases to make way for iPhone X.”

Maintains perform

GBH Insights, Daniel Ives

The revenue forecast was “much better than feared and will be a major relief for the stock.”

“The big question now is what will the demand picture look like post-June with a much anticipated three pronged smartphone product cycle around the corner.”

To contact the reporters on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net, Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net.

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

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