Wall Street Weighs In On Apple's Huge Quarter

Apple Inc. AAPL shares were up more than 4.5 percent after the company released a much better-than-feared fiscal second-quarter earnings report on Tuesday. The stock was trading around $176.79 Wednesday afternoon.

Most major Wall Street firms weighed in on Apple following the big report.

Voices From The Street

Bank of America analyst Wamsi Mohan said better-than-expected iPhone demand, gross margin upside, a massive capital return program, and robust Services and wearables growth are all good reasons to own the stock.

“Investor focus will soon shift to new iPhones to be released in fall of 2018 (battery replacements not materially elongating replacement cycles),” Mohan wrote.

Bulls On Parade

Bernstein analyst Toni Sacconaghi said fiscal third-quarter iPhone guidance was much stronger than the market anticipated.

“We struggle with the disconnect between supply chain data points & Apple's guidance, though we note Apple has never missed its revenue guidance under its current CFO,” Sacconaghi wrote.

Morgan Stanley analyst Katy Huberty said the 31 percent Services revenue growth was the key takeaway for long-term investors.

“Even if smartphone replacement cycles continue to lengthen, we see Apple delivering 4% revenue and 16% EPS growth over the next three years with services the primary growth engine,” Huberty wrote.

Tigress Financial analyst Ivan Feinseth said Q2 numbers were only slightly better than expected, but investors are relieved that iPhone demand isn't actually starting to slow.

“I continue to recommend purchase of Apple and believe significant upside exists from current levels,” Feinseth wrote.

D.A. Davidson analyst Tom Forte said Apple’s massive cash holding gives the company flexibility to perform buybacks, increase its dividend and hunt for strategic acquisitions.

“Apple’s 2QFY18 operating performance and capital allocation decisions illustrated why we are bullish on shares,” Forte wrote.

Some Skepticism...

KeyBanc analyst Andy Hargreaves said that, despite the positive market reaction, Apple’s quarter did little to impact KeyBanc’s 2018 estimates.

“While F2Q results and F3Q guidance were better than many feared, they still suggest stagnant iPhone unit demand and weaker pricing power than we anticipated entering the cycle,” Hargreaves wrote.

Oppenheimer analyst Andrew Uerkwitz said Apple’s $100 billion buyback plan and 270 million paid subscriber count protect the stock from near-term downside.

“However, we remain skeptical over Apple's ability to maintain its market dominance in the mid- to-long term when competitors in software and services erode its hardware differentiation,” Uerkwitz wrote.

...And Relief

GBH Insights analyst Daniel Ives said Wall Street was in panic mode prior to the report, but Apple’s guidance eliminated much of the near-term market fears.

“This guidance number was much better than feared and will be a major relief for the stock as the trough June quarter shows core demand, ASPs, and momentum heading into the September quarter and new iPhone product cycle are alive and well despite disappointing iPhone X demand,” Ives wrote.

Ratings And Targets

• Bank of America has a Buy rating and $225 target.
• Bernstein has a Market-Perform rating and $190 target.
• KeyBanc has a Sector Weight rating and $175 fair value estimate.
• Morgan Stanley has an Overweight rating and $220 target.
• D.A. Davidson has a Buy rating and $220 target.
• Stifel has a Perform rating and no target.
• GBH Insights has a Highly Attractive rating and $200 target.

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