Wall Street Reacts To Apple's Q1 Earnings, Guidance

Many Apple Inc. AAPL investors are breathing a sigh of relief after the company's fiscal first-quarter results came in slightly better than expected and the stock initially jumped higher by more than 5 percent. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Goldman Sachs' Rod Hall maintains a Neutral rating on Apple with an unchanged $140 price target.
• Bank Of America's Wamsi Mohan maintains at Neutral, price target lowered from $190 to $180.
• Morgan Stanley's Katy Huberty maintains at Overweight, price target lowered from $211 to $197.
• UBS' Timothy Arcuri maintains at Buy, price target lifted from $180 to $185.
• Wells Fargo's Aaron Rakers maintains at Market Perform, unchanged $160 price target.
• Rosenblatt Securities' Jun Zhang maintains at Neutral, price target lowered from $165 to $150.
• Raymond James' Chris Caso maintains at Market Perform, no price target.
• KeyBanc Capital Markets' Andy Hargreaves maintains at Sector Weight, no price target.
• Loup Ventures' Gene Munster and Will Thompson.
• Piper Jaffray's Mike Olson.

Apple's stock traded higher by nearly 5 percent at time of publication at $162.14 per share.

See Also: Apple Beats Q1 Estimates Despite iPhone Sales Drop Thanks To Service Growth

Goldman Sachs: Demand Weakness Apparent In Guidance

Apple's March-ending revenue guidance at the midpoint fell short of Goldman Sachs' estimates by 2.2 percent and the consensus estimate by 3.4 percent, Hall said in a research report. The foreign exchange adjusted guidance suggests iPhone revenue will continue to deteriorate and likely suggests uncertainty in demand for iPhone smartphones.

Overall Apple's report showed no signs of improving business trends although it also showed no signs of weakness, the analyst said. Coupled with ongoing concerns of economic weakness in China investors should hold a neutral stance on the stock.

Bank Of America: Product Margins More Important Than Services

Apple's new Services gross margin disclosure of 62.8 percent was strong, but Mohan said more time is needed before investors can have confidence this can be sustained over the long term. Specifically, the mix of Service sales matter as some features boast higher margins than others.

More important to Services margins is product margins, which management guided to 37 percent to 38 percent which fell short of the research firm's 38.6 percent estimate. Since overall margins remain under pressure with no clear near-term catalyst, the bullish case for the stock can't be justified.

Morgan Stanley: 3 Reasons To Be 'Less Bearish'

Apple's earnings print contains three notable readouts that should make bear investors "less bearish," Huberty said.

• January iPhone sales trends improved after deteriorating in November and December including the iPhone XR in China;
• Management's gross margin guidance was better than feared and likely conservative given a mix shift towards higher margin iPhones; and
• Management expressed a "bullish tone" in disclosing Services revenue at 62.8 percent with upside to the research firm's 62.7 percent estimate for 2019.

UBS: 4 Reasons To Be 'Optimistic'

Apple had enough fuel for both bears and bulls to highlight but UBS remains "optimistic" for a four key reasons, Arcuri said.

• The "worst of the bad news" is over for now;
• A "paltry" $30 million from its largest third-party subscription app signals a "vast fertile ground"; 
• The elongated iPhone replacement story is well known but Apple appears to be "close to some asymptote"; and
• New video and gaming content could contribute to a more positive narrative.

Wells Fargo: A Closer Look At Buybacks

Apple's cash hoard (and investments) at the end of the reported quarter was $245 billion and the company spent only $8.8 billion to buyback its stock in open market repurchases, Rakers said. Coupled with $3.568 billion in dividend payments, the company's total shareholder returns slowed considerably from $22.63 billion last quarter to $12.364 billion.

Apple's share buyback as a percentage of daily average volume also declined from 5.5 percent in the fiscal fourth quarter 2018 and 5.9 percent to 1.5 percent.

Rosenblatt: Looking Beyond FQ2

An weakness Apple sees in the March quarter is already priced into the stock but looking beyond the quarter there is reason to believe the company will see further headwinds. Zhang said the company may see setbacks from a slowing smartphone market, competitors transitioning from 4G to 5G devices, and weakness in China from the ongoing trade war with the U.S.

Raymond James: iPhone Margins Fell Short'

Apple's "cautious report" is highlighted by a better than expected Services margins, which Caso said also means the more important iPhone margins were lower. In fact, iPhone margins were expected to come in "solidly above" the corporate average but were likely close to the corporate average.

Despite near-term challenges, Apple's stock will "eventually be buyable" when the 2020 5G cycle picks up momentum.

KeyBanc: Outlook 'Isn't Particularly Good'

Apple's stock could see a "modest relief rally" as the company's outlook "isn't worse than expected," Hargreaves said, but this isn't to suggest management's guidance is "particularly good" as hardware sales are likely to continue declining and the Services segment showed minimal evidence it can outperform current expectations which is a key component to justify a multiple expansion.

Related Link: Analyst Says Apple's App Store Spending Is Likely To Slow In 2019

Munster: Ecosystem 'Stronger Than Ever'

Apple's ecosystem is "stronger than ever" after management disclosed active iPhone users rose 8.3 percent from last year to 900 million and total installed Apple devices rose by 7 percent in the last 11 months to 1.4 billion, Munster and Thompson said in a blog post. These two readouts suggests the "Apple as a service theme" remains compelling and should navigate the company through a "difficult" 2019.

Piper Jaffray: One Positive And One Negative

Speaking as a guest during Benzinga's PreMarket Prep, Olson offered one positive take and negative take on Apple's report.

On the positive side, Apple's Services gross margins came in 3 percent better than expected. On the other hand, even with a reduction in overall revenue guidance in early January for the reported quarter, iPhone revenue still fell short of expectations.