What is perhaps more important in the Raymond James call is that the firm expects a market rerating for a higher price-to-earnings (P/E) multiple that would rise to 15.5 rather than the current 11.6. The firm was impressed with Apple’s 38% gross margin level, considering that Apple’s inventory was filled with lower margin iPhone SE units. Raymond James also is looking for more muted product cycles ahead, but it thinks 2017 will be better than average.
Oppenheimer has a Perform rating, and the firm’s Andrew Uerkwitz has no price target. His report noted that the inline report was boosted by recently reduced expectations and a series of negative analyst commentary on iPhone cycle weakness and competitive threats. Oppenheimer pointed out a 33% decline from a year earlier in China revenues but was more optimistic about China ahead due to its market-leading installed base and customer loyalty. Oppenheimer continues to expect that the iPhone 7 product cycle will be weak and more dramatic changes will come to the iPhone in 2017.
Piper Jaffray’s Gene Munster, who has been one of the biggest Apple bulls for years, was calling for services revenue of $5.9 billion ahead of earnings. Munster trimmed his price target slightly, down to $151 from $153. Given this is from one of the top Apple bulls for years, some investors might make note of this. Still, Munster’s target remains about 25% higher than the consensus analyst target.
Wells Fargo’s Maynard Um has an Outperform rating on Apple with a valuation range of $115 to $125 that remains in place. His report is based on roughly 10 times the firm’s 2017 free cash flow estimate, and he noted that the extra week and strengthening margins provide visibility for the second half. Wells Fargo said:
Key risks include potential demand pressures due to global economic uncertainties, China exposure, mis-step in product cycle, legal disputes and greater than expected margin pressures.
We believe the risk/reward at 8 times our free cash flow estimate is tilted favorably with investor sentiment likely reflecting potential first half softness and our view that iPhone shipments have not peaked and would increase year over year in December of 2016.
S&P Global maintained its Strong Buy rating on Apple shares, with a $130 price target. This is based on a P/E ratio of 13 times the S&P 2018 EPS estimate — or 10 times if you exclude Apple’s net cash. These ratios are said to be above Apple’s hardware peers and competitors, but it is below the ratios for the S&P 500 Technology sector.
Other key analyst calls with price target changes in Apple were as follows:
- BTIG raised its price target to $124 from $115.
- Citigroup raised target price to $120 from $115.
- JPMorgan raised its price target to $107 from $105.
- Macquarie raised its price target to $115 from $112.
- Maxim Group raised its target to $173 from $168.
The bulls and bears obviously still have a lot to fight over here. Apple’s short interest declined ahead of earnings. We still have yet to see anything real on new products regarding an Apple car initiative (if it is even a real car or a system for inside the cars) and artificial intelligence. Ditto for virtual reality, and some still even hope for that old rumor of an Apple television set.
Apple shares were last seen trading up 6.5% at $102.91, and the 39 million shares on an average day was crossed in less than the first hour of trading on Wednesday. Apple’s 52-week trading range is $89.47 to $123.82, and the Thomson Reuters consensus analyst price target is $122.93.