What To Make Of Apple Earnings: Wearables, China And Apple TV+

Apple Inc. AAPL shares traded higher by 2% on Thursday after the company beat earnings and revenue expectations in the fiscal fourth quarter and guided for better-than-expected sales in the critical holiday quarter.

Apple reported 18% Services segment growth and 54% revenue growth in wearable devices. Apple’s iPhone revenue was down 9% in the quarter, but iPhone revenue declines have now improved for three consecutive quarters.

Plenty of Wall Street analysts have weighed in on Apple following the report. Here’s a sample of what they’ve had to say.

Clean Numbers

Morgan Stanley analyst Katy Huberty said Apple’s numbers were squeaky clean.

“Our EPS estimates increase slightly and we see further upward EPS revisions as AAPL approaches the 5G cycle and TV+ ramp,” Huberty wrote in a note.

Wells Fargo analyst Aaron Rakers said China is stabilizing while wearables and Services are driving revenue growth.

“We see Apple’s iPhone stabilization in China as a key driver of Services revenue as the firm looks to maximize ARPU through the continued rollout of new subscription services,” Rakers wrote.

Credit Suisse analyst Matthew Cabral said the iPhone 11 cycle is off to a strong start.

“Against a bar that seemingly kept getting higher into the print, Apple delivered as the iPhone 11 cycle is off to a better-than-expected start and commentary about further improvement in y/y trends expected during C4Q was encouraging,” Cabral wrote.

Big 2020 Ahead

Raymond James analyst Chris Caso said Apple seems to be turning a corner and setting up for a big 2020.

“Our positive thesis remains underpinned by our expectation for a two year upgrade cycle starting next year, which we think will benefit both units and mix,” Caso wrote.

Loup Ventures' Gene Munster said investors are starting to get a glimpse into Apple’s grand long-term vision.

“AirPods Pro ‘transparency mode’ adds to features like ‘Hey Siri’ and ‘magic’ device pairing to create a new kind of personal computing experience – a category we call hearables,” Munster wrote.

Additional Upside?

KeyBanc analyst Andy Hargreaves said Apple shares are fully valued despite the solid quarter and guidance.

“While the Company has rapidly expanded its Services offering, we continue to expect smartphone saturation to constrain Apple's overall profit growth,” Hargreaves wrote.

D.A. Davidson analyst Tom Forte said Apple's stock is looking as delicious as ever.

“After boasting a strong fiscal fourth quarter and exceeding consensus projections across the board, we recommend investors purchase shares and take advantage of the new age Apple,” Forte wrote.

Tigress Financial analyst Ivan Feinseth said the iPhone 11, the AirPad Pro and Apple TV+ should drive a string holiday season for Apple.

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

Ratings And Price Targets

• Morgan Stanley has an Overweight rating and $296 target.
• Raymond James has an Outperform rating and $280 target.
• KeyBanc has a Sector Weight rating.
• D.A. Davidson has a Buy rating and $300 target.
• Wells Fargo has a Market Perform rating and $245 target.
• Credit Suisse has a Neutral rating and $221 target.

Apple's stock traded around $248.72 per share at time of publication.

Benzinga’s Take

Apple’s ability to navigate the trade tensions between the U.S. and China up to this point has been admirable, and its iPhone 11 cycle is clearly off to a hot start. However, iPhones and iPads are potentially subject to new 15% import tariffs starting in December, so Apple still needs a trade agreement to happen in the near future.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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