Good, Not Great: Analysts Break Down Apple's Quarter

Apple, Inc. AAPL stock jumped more than 6.5 percent Wednesday after the company reported a big March quarter earnings beat and issued better-than-expected guidance.

For the fiscal second quarter, Apple reported $2.46 in EPS on revenue of $58 billion. Both numbers topped consensus analyst expectations of $2.36 and $57.3 billion, respectively. Apple also guided for third-quarter revenue of between $52.5 billion and $54.5 billion, ahead of analyst estimates of $51.9 billion.

Several analysts have weighed in on Apple stock following the big earnings beat. Here’s a sampling of what they’ve had to say.

iPhone Business Stabilizing

Bank of America analyst Wamsi Mohan said Apple’s trade-in initiatives seem to be resonating with iPhone users.

“We believe consumers are not realizing the residual value of their iPhones, and the trade-in program acts as a replacement to carrier subsidies following the introduction of higher priced iPhones,” Mohan wrote in a note.

UBS analyst Timothy Arcuri said Apple’s quarter was solid, but there was no new information to change the long-term outlook for the company.

“The worst is behind us in iPhone (mgmt was clear that March was a much better month and our data already shows AAPL is essentially at replacement) and non-iPhone hardware categories are showing some strength (though clearly nowhere near as important as iPhone) ahead of easing FX headwinds,” Arcuri wrote.

KeyBanc analyst Andy Hargreaves said bulls should feel good about Apple‘s quarter, but the stock is fully valued at its current level.

“We believe Apple's overall growth rate remains constrained by a saturated high-end smartphone market and decelerating Services tied to iPhone,” Hargreaves wrote.

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China Concerns Linger

Greater China revenue was down 21.5 percent in the second quarter, but Wells Fargo analyst Aaron Rakers said investors shouldn’t sweat China too much.

“Shares of Apple traded higher post-close as we think the company’s June quarter guide + commentary support the view that we are now seeing indications stabilizing/bottoming iPhone demand (particularly in China), coupled with continued solid double-digit growth in Apple’s services business (+16% y/y),” Rakers wrote.

Wedbush analyst Daniel Ives said strong June quarter guidance highlights just how far Apple has rebounded since it started 2019 with a guidance cut.

“With Cook and Cupertino facing hurricane-like headwinds in China, iPhone demand appears to have weathered the storm and is starting to ‘rise from the ashes’ of the December debacle with a stronger growth trajectory now forecasted for the coming quarters and a healthy product cycle around the corner slated for September,” Ives wrote.

Rosenblatt Securities analyst Jun Zhang said that, while guidance was better than expected, there are lingering concerns about Apple’s 2019 product cycle in China.

“We remain the most concerned about Apple’s new product cycle, set to launch in the 2nd half of this year, as we believe demand in China will still be challenging,” Zhang wrote.

Catalysts Ahead

Morgan Stanley analyst Katy Huberty said Apple has now cleared the path for bullish catalysts in its Services segment and the 5G upgrade cycle.

“Better than expected June Q guide and more bullish iPhone commentary were positive surprises against cautious investor positioning,” Huberty wrote.

Tigress Financial analyst Ivan Feinseth said Apple’s expanding Services platform, including gaming, news and TV offerings, will help drive long-term earnings and revenue growth.

“I believe upside to the $220 to $240 range exists over the next 12 months and continue to recommend purchase,” Feinseth wrote.

Gene Munster said the most important part of the March quarter for investors is that there weren’t any negative surprises.

“Growth in non-iPhone revenue is evidence of strength in the Apple ecosystem and should slowly help investors get comfortable moving beyond the iPhone cycle story in the coming quarters,” Munster wrote.

Ratings And Price Targets

• Morgan Stanley has an Overweight rating and $240 target.
• Wells Fargo has a Market Perform rating and $215 target.
• Bank of America has a Buy rating and $230 target.
• UBS has a Buy rating and $235 target.
• Wedbush has an Outperform rating and $235 target.
• KeyBanc has a Sector Weight rating and no target.
• Rosenblatt has a Neutral rating and $150 target.

Apple's stock traded around $213.84 per share at time of publication.

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