Apple’s not-so-boring Q3 2018: What the analysts are saying

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Raising price targets nearly across the board. Who’s a trailing indicator now?

 

Excerpts from the notes I’ve seen. More as they come in.

Tim Long, BMO: Lots of positives. We are impressed by the iPhone ASP, which bucked normal seasonality. We had expected more of a hit from price elasticity, but consumers are still buying higher-priced devices. Services continue to grow near 30% y/y thanks to growing subscription businesses and a higher iPhone installed base. We estimate Services at 16% of revenues in FY19. Other products grew by 37% to get to 7% of total revenue, driven by wearables. Apple has a net cash position of $129 billion, which means we should see many more quarters of aggressive buybacks like the last two. Market perform. Raises price target to $199 from $184.

Robert Cihra, Guggenheim: Cutting through the noise. We see Apple’s beat+raise once again driven by upside in iPhone ASPs and Services growth, with the first being key to offsetting mature smartphone unit growth and the second to expanding its P/E. Sep-qtr guide looks strong into an upcoming iPhone refresh that we continue to see coming on time, with larger screen sizes noticeably absent from last year’s X launch, and setting up our forecast for at least modest unit re-acceleration just in time for ASP increases that start to anniversary in FY19E… Looking toward its Sep-qtr refresh, we continue to see iPhone component suppliers having now burned off their inventory from 2H17 over-builds and starting to re-accelerate 2H18E production.  Buy. Raises price target to $235 from $225. 

Michael Olson, Piper Jaffray: Guide suggests iPhone optimism. We are raising our AAPL price target to $218 from $214. Our price target multiple remains unchanged at 16x CY19E EPS, but is now based on EPS of $13.61 (previously $13.35). We remain confident in this price target multiple due to solid iPhone units & ASP and Sept. qtr guidance, along with optimism related to a wider array of “X-gen” devices coming later this year. Overweight. Raises price target to $218 from $214. 

Gene Munster, Loup Ventures: The big picture. Apple’s June quarter results are evidence that the Apple story is moving away from a focus on the iPhone toward a more predictable Services-driven business that returns $25B in capital to investors each quarter. These results support our Apple as a Service thesis, which has the potential to move shares dramatically higher as investors get more comfortable with the theme.

Aaron Rakers, Wells Fargo: Our Call. Apple delivered strong F3Q18 result at $53.3B / $2.34 ahead of our $52.2B / $2.21 (street: $52.3B / $2.16). We think investor will be focused on: (1) Continue iPhone ASP strength ($724 vs. our $705 and street $697 estimates) with ongoing demand for premium models (iPhone X & 8/+) ahead of an upcoming iPhone refresh. (2) Services momentum continues with adjusted growth at +28% yr/yr and new record revenue for App Store, Music, Apple Pay, AppleCare and iCloud; paid subscriptions +30M q/q to 300M (vs. 185M a year ago). (3) Early innings of $100B stock repurchase (no expiry) – Apple spent $20.7B on share repo in F3Q18, including the completion of $10B pre-existing authorization. Market perform. Raises price target to $210 from $195. 

Walter Piecyk, BTIG: iPhone Still A Star Despite Record Low Upgrade Rates. iPhone revenue grew by over 20% despite smartphone upgrade rates being at historic lows. We believe there are early signs that upgrade rates might be bottoming, which could provide an additional tailwind to our estimates that are now above consensus… Growth in R&D expense has outpaced revenue growth in 24 of the past 25 quarters, a reflection of Apple’s dedication to continue to invest for new growth opportunities. Buy. Raises price target to $235 from $207.

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