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Consumers seem more drawn to the more expensive versions of Apple’s latest iPhones than to the cheaper ones.
Jack Taylor / Getty Images
Apple
produced a breathtaking result for the last quarter, beating Wall Street expectations for all major product lines, with particularly strong numbers for the iPhone. And yet, the stock is in the red even as the S&P 500 jumps.
The company experienced double-digit growth in every product category, with record revenues in every geographic market. He reported a huge rebound in sales in China and achieved gross margins more than a percentage point higher than expected. The company continues to repurchase large amounts of shares:
Facebook
(ticker: FB) announced a $ 25 billion buyback program on Wednesday, but Apple repurchased just as many shares in the December quarter alone.
And yet, Thursday’s stock was down, while the S&P 500 was up 1.7%.
The drop came despite rave reviews for the Quarter on Wall Street. Barron’s counted at least 16 analysts raising their targets for Apple’s stock price, and we may well have missed a few.
It looks like the stock’s dramatic rise has at least temporarily drained investors. Apple shares doubled between the end of 2019 at $ 72.78 and Wednesday’s noon high at $ 145.09, adding more than $ 1 trillion to market capitalization. The business is certainly having an amazing time, but the price may be a little ahead of fundamentals.
Bernstein analyst Toni Sacconaghi pointed out in a research note that Apple significantly exceeded expectations in terms of revenue and earnings per share during the quarter. He is certainly right about it. Apple posted revenue of $ 111.4 billion, up 21% from the previous year quarter, and profits of $ 1.68 per share. The results crushed the consensus Street forecast of $ 102.8 billion and $ 1.40 per share, respectively. That’s due to iPhone revenue of $ 65.6 billion, up 17% from a year earlier, and $ 6 billion ahead of Street’s consensus.
Sacconaghi said he was struck by the consumer preference for the more expensive versions of the iPhone 12 Pro and Pro Max. This has boosted iPhone revenues and the company’s gross margins, as the fancier phones are more profitable. He also cited “the uniform strength of all hardware products, with Apple having benefited from the reallocation of consumer spending during the pandemic.”
But Sacconaghi remains cautious. While it moved its target price to $ 132, from $ 120, it maintained its market performance rating on the stock. “Apple has had a tremendous run and is trading online with the big tech companies with higher growth rates,” he wrote. “At 34 times the 2021 consensus EPS, more limited opportunities for upward revisions after Q1, and with the company facing very tough comps and a quieter iPhone cycle next year, we’re struggling to see the arguments in favor of a material outperformance compared to current levels.
Many other analysts disagree.
Jefferies analyst Kyle McNealy repeated a buy note, while increasing his price target to $ 160, from $ 140. “We think the streets are still underestimating Apple’s opportunity with 5G,” he wrote. “In our opinion, there is a lot more to come as we are only in the early stages of Apple’s 5G adoption cycle.” And he believes the switch to 5G will strengthen the continued strength of the Wearable and Services segments.
Brian White, along with Monness Crespi Hardt, repeated his purchase and raised his target price to $ 170, from $ 144. “Apple’s solid balance sheet, its iconic brand, its rapidly growing service business, its portfolio of innovations and its strong stance on privacy will enable the company to emerge stronger from this crisis,” he said. he stated in a research note.
Raymond James analyst Chris Caso made a similar point: The iPhone 5G cycle will last for a while and benefit other Apple companies.
“The company has delivered on all fronts including the iPhone, Macs, wearable devices and services,” Caso wrote. “And a richer iPhone mix had the edge we expected. Although Apple delivered this cycle, we have long considered it to be a 2-year 5G cycle, with better global 5G coverage providing a greater incentive for upgrades, and what we expect. to be a new form factor.
He said he expected the service industry to benefit as Apple sells more devices, increases the number in use and adds new service offerings. He maintained an outperformance rating on the stock and raised his price target to $ 160 from $ 150.
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(GME) Evercore ISI Amit Daryanani said in his Quarterly Review that there was “no need for Reddit endorsements with performances like this.” He said the company’s forecast for a seasonal drop in revenue starting in the December quarter did not reflect an easing of the Covid-19 crisis, nor the arrival of additional stimulus checks.
Both factors could be “big drivers” of gains, Daryanani said. And he noted that the company not only produced higher gross margins than expected, but said it would maintain the new level in the current quarter. He repeated his outperformance rating, while increasing his target price to $ 163, from $ 160.
But maybe in fact Apple could use a few Reddit mentions. Shares were down around 2%, to $ 139.28 on Thursday.
Write to Eric J. Savitz at [email protected]
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