Apple's Q3 Was Disappointment-Free, Says Piper Jaffray

Wall Street analysts, investors and customers all seem to share enthusiasm for Apple, Inc. AAPL’s third-quarter report. 

The Analyst

Piper Jaffray analyst Mike Olson reiterated an Overweight rating on Apple and raised the price target from $214 to $218. He commented on the company's Q3 on Benzinga's PreMarket Prep morning show this week. 

The Thesis

Piper Jaffray is optimistic about Apple and how things turned out this quarter.

Apple beat on both iPhone and services revenue, which are generally main focus areas for investors, and the company guided its September quarter revenue above the consensus.

Olson considers the revenue beat to be driven by higher average selling prices, demonstrating the popularity of the $1,000 iPhone X.

“Management said on the call that the iPhone X was the bestselling iPhone again this quarter,” Olson said on PreMarket Prep. 

The September guidance reflects the company’s optimism on the imminent release of next-generation iPhones: an iPhone X update and two additional options, the analyst said.

“These two additional options would be a lower-price iPhone X, which we’d call the iPhone X light, and then a larger-screen plus version," Olson said. 

PiperJaffray is modeling for 3-4 million more phone units to be sold than what the consensus estimate projects. 

Amid the positive data, Olson said nothing in the Q3 report was disappointing to him, and he considers that fact to be somewhat scary.

The incentive for consumers to upgrade their iPhones has been an issue in recent years, Olson said. Instead of the common two-year upgrade eligibility in the past, Olson now considers the timeline to be closer to three — which is not a positive trend. While this could result in fewer units sold, Olson said he remains optimistic on the future of iPhone upgrades. 

“There’s a huge pool of potential upgraders. If we look at the number of active users of iPhones that are more than three years old, that pool of users is around 250 million this year,” he said. “It is longer, but at some point, it may not be cool to have a home button on your iPhone.”

Price Action

Apple shares closed Friday at $207.99.

Related Links: 

Apple's Stock Hits All-Time High After Beating Q3 Earnings, Sales Estimates

Apple Gets A Price Target Raise, But Analyst Sees Challenges Ahead