It really should not be possible that a for-profit enterprise can earn $11 billion in three months – and find its investors disappointed. Yet that’s essentially the case when it comes to Apple Inc. and the exceedingly high expectations the company carries with it.
Apple posted modest growth in both earnings and revenue, and a bottom-line figure that tops any other company’s bottom line. It also reported it is sitting on $256 billion in cash reserves, and it boosted it dividend and buyback programs. Yet investors were more focused on one fly in the ointment: a modest decline in iPhone sales. Given how important that product is to everything this company does, the concerns can be justified, to an extent.
The tech giant’s shares are down 1.8% shortly after the open on Wednesday, to $144.88.
Yet most analysts were willing to look past the current quarter’s numbers, and ahead to the next “supercycle” for the company, when it releases the next iteration of the smartphone, the iPhone 8. They’re also keeping an eye on the company’s massive cash haul, and how much of it is being returned to shareholders.
Here’s a sample of what the Street had to say about Apple’s earnings:
– Amit Daryanani, RBC Capital Markets (outperform rating, $157 price target): Overall, Apple reported largely in-line numbers for March-quarter and June-quarter guide is modestly below consensus. However, we don’t think the modest miss on guide derails the underlying narrative on Apple – iPhone supercycle, cash repatriation and services growth – makes Apple an attractive large-cap tech name to own for 2017. We do think underlying iPhone demand was likely better vs. headline numbers due to channel inventory management. China remained soft in the quarter and will likely be a focus. Finally, Apple increased their buyback program by $50 billion and increased their dividend by 10%+.
– T. Michael Walkley, Canaccord Genuity (buy, $165): We continue to believe iPhone 8 sales could exceed the strong sales for the iPhone 6 given our belief a new form factor will spur strong replacement sales with improving ASPs. In fact, we are modeling F2018 iPhone sales of 242M units versus the 231M units sold during F2015 with the very successful iPhone 6 upgrade cycle. Given our expectations for higher-end models with OLED screens, wireless charging, and other features, we are also modeling F2018 ASPs of $698 versus the strong $671 in F2015. We believe these estimates could prove conservative as we assume a lower percent of the installed base will upgrade to the iPhone 8 than the iPhone 6 with potentially conservative ASP assumptions given our belief new OLED screen iPhone 8s will have strong demand despite an ASP premium to previous iPhone models.
– Tavis McCourt, Raymond James (outperform, price target to $163 from $159): Both the quarter and guide were a bit more positive than feared, given recent pressure from memory, and early indications of softening of demand prior to the next iPhone launch. We are starting to build a longer, slower ramp for this year’s iPhone launch, which has the impact of lowering forecasts in September/December vs. our previous estimates, and raising 1H18 (calendar). As growth returns, we expect the valuation to continue to improve and raise our price target to $163, which is a 15x P/E on our CY2018 EPS estimate, below the parity multiple the shares peaked at in the iPhone6 cycle.
– Abhey Lamba, Mizuho (buy, price target to $160 from $150): The company shipped 51 million iPhones in the quarter which was slightly below consensus of 52 million. In addition to shipments, ASP of $655 was in-line with consensus of $658. Importantly, management highlighted 18% growth in services, which is helping it monetize its installed base. While we are encouraged by accelerating growth in the services business, we note that at about 10-12% of total revenues, the segment remains too small to move the needle for Apple. The company posted another quarter of declining sales in Greater China despite easier compare.
– Walter Piecyk, BTIG (buy, price target to $184 from $165): Despite the strong headwind of record low phone upgrade rates at service providers, Apple was able to grow revenue by 4.6% this quarter on strong Services, Mac, Watch and accessory (AirPods) sales. We expect the new product cycle to further accelerate revenue growth into the high single digits in 2018 and EPS into the low teens, with help from a $40 billion annual share repurchase program.
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May 03, 2017 at 07:11PM
from Paul Vigna
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