Technology

Apple Analysts Might Have $400 Price Targets If There Was No Recession

Jon C. Ogg

Published: May 1, 2020 10:35 am

Apple Inc. (NASDAQ: AAPL) managed to report earnings that would have been considered a victory nder the circumstances of the COVID-19 induced recession. The company even raised its dividend to boot, and revenues of $58.31 billion managed to exceed the consensus estimate of $54.8 billion.

Wall Street has chimed in with many analyst calls, and those will continue into next week. The top issue was Apple’s iPhone revenues of $28.96 billion. This was down 7% from a year ago, but that is still better than what was expected with consensus estimates of about $28.4 billion.

Imagine having only a 7% drop with so many store closed for an extended period during a global lockdown that brought on a recession. Apple’s services revenue also exceeded the $12.8 billion estimate by coming in at $13.35 billion.

Apple’s gross margin of 38.4% was more or less in-line with expectations of 38.5%. Where Apple further delivered to its investors was with a 6% dividend payout hike to $0.82 per share per quarter. And unlike many other companies facing scrutiny, Apple has so much cash that it was not penalized for announcing another $50 billion earmarked for stock buybacks.

Apple has close to a $1.3 trillion market cap, and with $13.3 billion in cash flow the company managed to spend $18.6 billion repurchasing its own shares during the quarter. Apple also finished the quarter with more than $107 billion in cash.

Many analysts on Wall Street were quite positive about Apple after the report. There had been expectations that things could have been far worse, and without the recession this report would have likely seen many more $400 price targets rather than the price targets that are being seen today. That is true even after a key analyst cut Apple to a “Sell” rating.

Wedbush Securities reiterated its Outperform rating and $335 price target. Ives used to be much more aggressive on Apple ahead of the recession, and his target had been $400. The firm’s Daniel Ives said:

We note that the Services gross margin was again ahead of expectations at 65.4% and product gross margin was 30.3% compared to the Street’s expectation of 65.1% and 32.4%, respectively. As such, based on the better than anticipated top line results and a strong Services margin pro forma EPS came in strong at $2.55 vs. the Street’s $2.24 estimate. Importantly, China delivered $9.46 billion in revenue, down 8% y/y and accounted for 16% of total revenue as this key region was better than both ours and the Street’s expectation. We note that Europe revenue was $14.29 billion growing 10% y/y…

Our scenario now assumes the 5G iPhones do not get released this Fall (we see a 10%-15% chance of the iPhone 12 launch happening in October) due to the global lockdown-like conditions with the supply chain in Asia still on a path to normalization. We believe the Street is already starting to factor in a 5G launch that moves into the December timeframe reflected in the stock and will be a key focal point of the call.

BofA Securities reiterated its Buy rating and raised its price objective to $320 from $310. The firm’s Wamsi Mohan indicated in the target hike that revenues are holding up relatively well despite the severity of COVID-19 and also that the revenue from services rose 17% from a year ago. An additional boost was that Apple’s active installed base and its number of paid subscribers grew, and that any weakness in iPhone, wearables, and services is likely transitory. BofA’s investment rationale said:

We rate Apple Buy as: (1) valuation remains inexpensive, (2) cyclicality of product cycles is less material as revenues can grow on a consistent basis, (3) unit disclosure changes are likely to matter less as the company pivots to a rev/user model and drives higher spend per user across all Apple devices/services, (4) loyal user base, (5) installed base of iOS still growing, (6) services penetration remains low, (7) demographic changes in Apple’s favor, and (8) strong FCF and capital returns.

Evercore ISI had already had an Outperform rating and $325 price target, but the firm’s Amit Daryanani has already laid out a path to where Apple could trade up to a $500 stock price.

UBS reiterated its Buy rating and raised its price target to $320 from $310.

Raymond James reiterated its Outperform rating and raised its target price to $340 from $305.

JPMorgan reiterated its Overweight rating and raised its price target to $350 from $335.

Piper Sandler reiterated its Overweight rating and raised its price target to $310 from $300.

Deutsche Bank reiterated its Buy rating and raised its price target to $305 from $285.

D.A. Davidson maintained its Buy rating but the firm trimmed its target price down to $355 from $370.

Morgan Stanley reiterated its Overweight rating and raised its price target to $326 from $298.

Oppenheimer reiterated its Outperform rating and $320 price target.

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Not all firms on Wall Street were positive on Apple after its results:

• Credit Suisse maintained its Neutral rating with a $260 price target.
• Barclay’s maintained an Equal Weight rating but raised its target to $288 from $268.
• Nomura/Instinet still has a Neutral rating but raised its target to $250 from $240.

Apple’s stock price was up almost 1% at $296.00 on Friday morning. Despite the sell-off, the market recovery in the last five weeks has Apple up nearly 40% from its absolute lows of the peak selling pressure in March. Apple is also now still up about 1% so far in 2020 and it is down only about 10% from its highs.