Why Analysts Keep Rekindling Apple Interest

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Apple Inc. (NASDAQ: AAPL) reported its first-quarter earnings this past week and absolutely shocked investors and analysts alike. Apple is the best-performing Dow stock so far in 2017, up about 11% in this time. However, the stock only generated a return of 12.5% in 2016, which means that this year could shape up to be something big for this iPhone giant. The stock popped with the earnings this week and analysts chased it even higher.

When 2017 kicked off, Apple had a consensus analyst price target of $131.96. After the close on Friday, the consensus price target had jumped to $138.39. Note that the consensus target was $131.00 just 60 days ago and $130.75 right before the election.

Apple opened last week at $120.93, but after reporting earnings on Tuesday shares rose as high as $130.49, and eventually closed the week up 6.7% at $129.08.

24/7 Wall St. has included some highlights from the earnings report, as well as what a few analysts are saying about this record quarter.

For the fiscal first quarter, the company said that it had $3.36 in earnings per share (EPS) and $78.4 billion in revenue, versus consensus estimates from Thomson Reuters that called for $3.22 in EPS and revenue of $77.38 billion. The same period of last year reportedly had EPS of $3.28 and $75.87 billion in revenue.

Apple also issued guidance for the fiscal second quarter. Revenues are expected to be in the range of $51.5 billion to $53.5 billion with a gross margin between 38% and 39%. The consensus estimates are $2.09 in EPS and $53.94 billion in revenue for the coming quarter.

Its business segments reported as follows:

  • The iPhone segment shipped a total of 78.29 million units for total revenue of $54.38 billion, an increase of 5% in units and 5% in revenue year over year.
  • iPad shipped 13.08 million units for $5.53 billion in revenue, a decrease of 19% in units and a decrease of 22% in revenue from the same period last year.
  • The Mac segment shipped 5.37 million units for a total of $7.24 billion in revenue, with units rising by 1% and revenue rising by 7%.
  • Services revenues rose 18% year over year to a total of $7.17 billion in revenue.
  • Other Products had revenues that totaled $4.02 billion, which was down 8% from last year.

Merrill Lynch was one of the first major analysts to comment on Apple. The brokerage firm has a Buy rating with a $140 price objective, and it said that iPhone units came in strong in the December quarter (78 million) but iPad was significantly weaker on supply constraint (component shortage). One of the goals is to double services revenue in four years, which would help margins, a catalyst being that the December quarter saw strong growth in services revenue.

Credit Suisse followed suit, reiterating an Outperform rating with a $150 price target. The firm noted in its report:

With the iPhone returning to growth and Services again showing stellar growth (with management expecting Services revenue to double in 4 years), we believe our thesis is intact. Given the Services growth and an installed base that could reach about 1.4 billion LT, we see sustainable free cash flow of $67 billion LT with a valuation of $150.

Some other analysts weighed in on Apple as well:

  • RBC has an Outperform rating and raised the price target from $125 to $140.
  • Pacific Crest has an Overweight rating and raised its price target to $140 from $127.
  • Morgan Stanley has an Overweight rating and raised its target to $150 from $148.
  • Mizuho has a Buy rating and raised its price target to $135 from $130.
  • Deutsche Bank has a Hold rating and raised the price target from $108 to $115.
  • Canaccord Genuity has a Buy rating and raised the price target to $142 from $140.
  • Barclays has an Equal Weight rating and raised its price target to $123 from $117.

Shares of Apple closed Friday at $129.08, with a consensus analyst price target of $138.39 and a 52-week trading range of $89.47 to $130.49.