Better Than Feared: Apple Impresses Analysts With iPhone Sales, Return To Hope For China

Apple Inc AAPL impressed analysts with revenue from iPhone sales and a return to growth in China, although both figures came in lower than last year.

Apple reported total revenues of $53.8 billion, beating Wall Street's $53.3 billion estimate. Earnings per share of $2.18 beat the estimate by 8 cents. The company also issued bullish guidance for the September quarter.

The Analysts

Wedbush analyst Daniel Ives reiterated an Outperform rating on the stock and raised the price target from $235 to $245.

Bank of America analyst Wamsi Mohan reiterated a Buy rating and $230 price target.

Morgan Stanley’s Katy Huberty has an Overweight rating and a $247 price target on the stock.

See Also: Apple Is Still A 'Cash Machine' And A 'Whole Ecosystem Story'

Apple shares were up 4.6% to $218.43 at time of publication.

'Better Than Feared'

Ives wrote in a note that his higher confidence in the Apple story over the next 12 months is driven by results that were “much better than feared in light of Street panic around China demand.”

Ives said there were “rampant worries that iPhone demand in China was going to fall off a cliff.” Instead, he noted, China sales declined just 4% and Apple returned to growth in mainland China, which he said would be the linchpin to the bull thesis on the stock.

Huberty said some of the China issue was already taken care of with estimate cuts back in January. She also cited the mainland China growth, however, as a big contributor to iPhone revenue growth, and said there’s only limited downside to iPhone growth near-term.

The 4% year-over-year decline in the quarter, Mohan noted, was a lot better than 22% year-over-year drop that was seen in the second quarter.

Bullish Guidance

Ives called the highlight of the print the “robust” September guidance of $61 billion to $64 billion in total revenue, above the consensus $60.9 billion Street estimate.

“The company is guiding to relative strength in the September quarter on the heels of a trifecta of new iPhones expected to be released in early September and pent-up demand within the installed base which remains key to our Cupertino bull thesis over the coming year,” Ives wrote.

“Overall, we would characterize this quarter/guidance as a major feather in the cap for the bulls that should drive the stock to new highs over the coming months despite rampant Street skepticism that remains.”

Bridge To 5G

Piper Jaffray Senior Research Analyst Mike Olson said Wednesday on Benzinga's PreMarket Prep the solid quarter and strong guidance builds a nice bridge to the company’s next major catalyst, the launch of 5G capable phones in 2020.

Olson also commented on all the scrutiny tech companies have been facing from the public and government, and said antitrust concerns are minimal for Apple, which doesn’t have a monopoly in smartphones. Olson said consumers are more concerned with privacy issues, and Apple hasn’t been a big target there.

Services/App Store

Olson said "Apple is getting there,” in its move into services. He sees services making up 20% of total sales next year.

But Huberty said the only disappointment she saw in the quarter was that accelerating App Store growth didn't flow through to an acceleration in total services growth because of currency headwinds and tough compares.

Mohan noted that third-party data on App store publisher revenue suggests App Store revenue was up more than 20% in April and slightly less in each of the other months in the quarter while “other” revenue, including Apple Watch, Accessories and iPod, grew 48% year-over-year, better than growth in the prior quarters.