Why Wall Street Now Sees Even More Upside for Apple

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Apple Inc. (NASDAQ: AAPL) did it yet again this quarter and knocked its fiscal second-quarter earnings out of the park. Of course, analysts were quick to jump on Apple and raise their targets, although a few were sidelined on the stock.

24/7 Wall St. has included some highlights from the report, as well as what analysts are saying about the stock after the fact.

The iPhone giant said that it had $2.46 in earnings per share (EPS) and $58 billion in revenue, compared with consensus estimates that called for $2.36 in EPS and $57.37 billion in revenue. In the same period of last year, Apple said it had EPS of $2.73 and $61.14 billion in revenue.

In its most recent quarter, the firm reported its product sales as follows:

  • iPhone pulled in revenues of $31.05 billion, a decrease of 17.3% year over year.
  • Mac revenues decreased by 4.6% to $5.51 billion.
  • iPad revenues increased 21.6% to $4.87 billion.
  • Services revenues increased by 16.2% to $11.45 billion.
  • Other Products revenues increased by 30.0% to $5.13 billion.

Regarding guidance for the fiscal third quarter, the company expects to see revenues in the range of $52.5 billion to $54.5 billion and a gross margin of 37% to 38%. The consensus estimates call for $2.07 in EPS on $51.93 billion in revenue for the quarter.

Merrill Lynch reiterated a Buy rating and raised its price objective to $230 from $220. The brokerage firm said:

We view meaningful upside potential in shares of Apple and move our PO to $230. F2Q came in better than expected. Positives include 1) iPhones/China have bottomed, 2) Channel inventory reduction, 3) resilient GM, 4) benefits from trade-ins. 5) Services reacceleration, 6) IB grows, 7) Strong capital return, 8) Dividend up, 9) iPad, Wearables strong,

CFRA reiterated a Buy rating and raised its price target to $235 from $220. It also raised its fiscal 2019 EPS estimate to $11.56 from $11.47, and fiscal 2020 to $13.07 from $13.03. The firm introduced its fiscal 2021 EPS view at $14.74. CFRA detailed in its report:

Last night, Apple reported Mar-quarter results and Jun-quarter outlook that exceeded our expectations, as we believe iPhone declines are moderating given improving conditions in China and positive customer reaction following price reductions/trade-in programs. We believe Apple will benefit from greater opportunities within its services business (20% of sales and 1/3 of profits), as it further evolves its installment hardware offerings, and we see an iPhone recovery upon a 5G device launch in the fall of ’20. We like Apple’s net cash position of $113 billion with annual free cash flow potential of over $60 billion plus supporting aggressive share repurchases, and see a return to top-line growth in the Jun-quarter.

Morningstar said about Apple:

Apple reported fiscal second-quarter results at the high-end of its guidance, owing to continued growth in services as well as stabilization in its iPhone business. CEO Tim Cook highlighted improvement in Greater China, thanks to recent pricing actions, trade-in and financing programs, stimulus efforts by the Chinese government, and improved trade dialogue between the United States and China. Additionally, Cook noted iPhone declines were considerably smaller during the final weeks of the March quarter, which is a reassuring trend. Meanwhile, the services segment delivered another impressive quarter, with App Store, Apple Music, cloud services, and App Store search ad businesses all recording all-time levels. Combined with a growing active installed base, our narrow moat rating stemming from switching costs remains comfortably intact, particularly as Apple customer satisfaction and loyalty continues to be healthy. We are maintaining our $200 fair value estimate and we think shares are fairly valued at current levels.

Here’s what other analysts had to say following the report:

  • Wedbush reiterated an Outperform rating with a $235 price target.
  • Canaccord Genuity reiterated a Buy rating and raised its price target to $245 from $230.
  • Morgan Stanley reiterated it as Overweight and raised its target to $240 from $234, after having just raised that target from $220 on April 24.
  • Credit Suisse reiterated a Neutral rating with a $209 price target.
  • Wells Fargo reiterated it at Market Perform and raised its target to $215 from $190.
  • Maxim Group reiterated a Hold rating and raised its price target to $217 from $197.
  • Macquarie reiterated a Neutral rating and set its price target at $190.

Shares of Apple were last seen up about 7% at $214.94 on Wednesday. The 52-week range is $142.00 to $233.47, and the consensus price target was $202.77 ahead of the analyst call deluge.

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