Wall Street Weighs In On Apple's Q3 Earnings Beat: Buybacks, Services, iPhone Demand In Focus

Apple Inc. AAPL shares were up more than 5 percent after the company released a much better-than-feared fiscal third-quarter earnings report. The stock was trading around $200 per share in mid-day trading Wednesday.

Buybacks Making An Impact

Deutsche Bank analyst Sherri Scribner said iPhone unit growth of just 1 percent was a bit disappointing.

“EPS beat expectations by $0.18, but we estimate that just $0.04 of the beat came from revenue upside, while the remaining $0.14 was helped by below-the-line items like higher other income, a lower tax rate and buybacks,” Scribner wrote in a note.

Longbow Research analyst Shawn Harrison said a richer iPhone mix and an aggressive buyback strategy were two key themes in the quarter.

“FY3Q results and F4Q guidance, which was above consensus, highlighted services growth momentum that shows few signs of abating, surprising sustainability of a richer iPhone mix, and the power of AAPL’s balance sheet and decision to accelerate its capital return,” Harrison wrote.

Solid Guidance

Rosenblatt Securities analyst Jun Zhang said Apple’s guidance was better than feared.

“We believe Apple will ramp up production of the new LCD iPhone model earlier than expected, and production volume will be larger than the market expects for the September quarter,” Zhang wrote.

Bank of America analyst Wamsi Mohan said iPhone demand is strong and prices are moving higher.

“Investor focus will likely soon shift to new iPhones to be released in fall 2018, with our 49K survey respondents suggesting the material part of the installed base is still on iPhone 6/6+ and intention to buy iPhones remains very high,” Mohan wrote.

Shift To Services

Morgan Stanley analyst Katy Huberty said Apple’s quarter was a clean beat and its march to a $1 trillion market cap remains on track.

“We see more upside than downside risk to the upcoming iPhone product cycle and a building Services narrative,” Huberty wrote.

Loup Ventures' Gene Munster said the third quarter provided more evidence of Apple’s long-term transition away from reliance on the iPhone.

“These results support our Apple as a Service thesis, which has the potential to move shares dramatically higher as investors get more comfortable with the theme,” Munster wrote.

Ratings And Price Targets

• Bank of America has a Buy rating and $230 target.
• Deutsche Bank has a Hold rating.
• Rosenblatt has a Buy rating and $200 target.
• Morgan Stanley has an Overweight rating and $232 target.
• Longbow has a Neutral rating.

Apple's market cap sat around $983 billion at time of publication.

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