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Wednesday, January 19, 2011, 06:25 am PT (09:25 am ET)

Apple's 'stunning' first quarter exceeds Wall Street's lofty expectations

Apple's earnings for the first quarter of 2011 crushed analyst expectations on Wall Street, who heaped praise on the company for beating estimates by $2 billion.

Apple posted record revenue of $26.74 billion, helping the company earn profits of $6 billion, or $6.43 per diluted share, in the three-months span ending Dec. 25, 2010. The Cupertino, Calif., company blew out even Wall Street's lofty expectations by selling 16.24 million iPhones, 7.33 million iPads, 4.13 million Macs, and 19.45 million iPods.

Following the news, analysts on Wall Street responded with their take on Apple's best quarter ever by increasing AAPL stock price targets and providing their take on where the company is headed next.

Needham & Company

Analyst Charlie Wolf referred to Apple's first quarter of fiscal 2011 as "stunning," noting that Apple set records in its three major product categories of the iPhone, Mac and iPad. iPad units in particular blew out Wall Street's consensus expectations of 6 million sold — the touchscreen tablet moved 7.3 million units over the holidays.

"On the market for just three quarters, the iPad took center stage," Wolf wrote. "The device is opening new markets, especially in the enterprise. We believe the trajectory of iPad sales could surprise on the upside as more and more businesses customize it for their mobile professionals."

Wolf has increased his 12-month price target on AAPL stock to $375, and has increased his 2011 earnings per share estimate from $18.45 to $22.25. He has an initial 2012 EPS estimate of $25.50.

RBC Capital Markets

Apple's typically conservative guidance for its second quarter of fiscal 2011 exceeded the expectations of Wall Street, analyst Mike Abramsky noted. Apple has predicted it will report revenue of about $22 billion in its next earnings release, higher than Wall Street's anticipated $21 billion.

The iPhone maker's fundamentals are strong, he said, which will be a comfort to investors even as uncertainty looms with the absence of Chief Executive Steve Jobs, who announced this week he is on a medical leave.

Abramsky expects Apple to reach $99 billion in revenue in the company's 2011 fiscal year, with a total of $23.30 earnings per share. Those numbers are up from his previous estimates of $91 billion in revenue and $20 earnings per share. The analyst also increased his 12-month price target to $425, from $395.

Piper Jaffray

Apple's December quarter managed to keep Apple's revenue growth accelerating for the firth quarter in a row, analyst Gene Munster noted. The company's revenue was up 71 percent compared to the holiday season of 2009.

Munster also noted that the average selling price of the iPhone increased to $625, which he called surprising.

"This increase in iPhone ASP is evidence that the carrier and consumer interest in the iPhone remains strong, and despite Apple adding additional carriers, ASPs have gone up," he said.

Apple also issued earnings per share guidance above Wall Street consensus for the first time in three years, Munster noted. The company's forecast for its next quarter is $4.90 EPS, a number 10 percent greater than expected on the Street.

Munster said this high guidance suggests that Apple is bullish on the opportunity to sell iPhones to new and existing Verizon subscribers when its CDMA handset goes on sale in the U.S. on Feb. 10. He also sees it as a sign that the company will increase production capacity and meet strong demand for the iPhone 4.

JP Morgan

Following Apple's earnings on Tuesday, analyst Mark Moskowitz increased its price target for AAPL stock to $450, up from $420. He believes the company's stock will be driven higher by break-out performances with the iPhone, iPad and new opportunities in the Asia-Pacific market.

He has also increased his revenue and earnings per share estimates to $23.83 billion and $5.21, respectively. Previously he had forecast revenue of $21.7 billion and EPS of $4.53.

"The company more than delivered," he said. "We are lifting our estimates and expect a series of number hikes. We expect the iPhone, iPad, and Mac to drive above-peer growth over the next 2-3 years."

Looking forward, Moskowitz believes investors will focus on Apple's ability to return its gross margins to between 39 percent and 40 percent over time. He also said that the sustainability of Apple's lead in the tablet market with the iPad will be watched closely.

Oppenheimer

"It's no surprise when Apple tops expectations," analyst Yair Reiner wrote, "but it's fairly rare to see it trounce Street's targets on almost every line. So it did in F1Q11."

Apple's earnings beat even the bullish predictions of Reiner, who had called for revenue of $25.1 billion (vs. consensus of $24.4 billion), as well as his projection of $5.62 earnings per share (vs. the Street's EPS of $5.39).

In particular, he said, the performance of the iPad proved strong, erasing the "disappointment" some saw in sales from last quarter. Reiner had predicted sales of 7 million iPads, which Apple beat by selling 7.3 million.

"The performance is particularly impressive when one considers that many potential buyers are likely biding their time in advance of a probable iPad 2 release in late March or early April," Reiner wrote.

Oppenheimer has raised its 12-month price target for AAPL stock to $425, and expects the company to report $22.9 billion in revenue and $5.18 earnings per share in the second quarter of fiscal 2011. For the entirety of 2011, the firm has forecast revenue of $100.8 billion and $23.92 earnings per share.

Kaufman Bros.

Apple's guidance for the next quarter is "even more upbeat than usual" due to the impending launch of the iPhone on Verizon, analyst Shaw Wu believes. He has increased his 12-month price target to $438, up from a previous prediction of $415.

"AAPL got there by shipping the most iPhones, iPads and Macs ever," Wu wrote. "And iPods didn't do too shabby either, coming in at 19.5 million units, well above expectations of 17.5 million, where strength in its iPod touch business ('the iPhone without a phone') continues to surprise."

Most "amazing" about Apple's quarter was the fact that the company accomplished so much in a tough macroeconomic environment, and against "the strongest companies in the world."

Morgan Stanley

Apple's blowout quarter prompted analyst Katy Huberty to increase her "bull case" scenario for Apple in calendar year 2011, with a high-end potential for $30 earnings per share. That's an increase from the previous $25 projection.

$30 EPS is achievable, she said, with the Verizon iPhone, new retail stores in China, and the possibility of a lower priced iPad launching in April.

"Importantly, we think that consensus expectations for flat gross margins in (calendar year 2011) is too low as Apple will likely benefit from scale and lower component costs," she wrote.

Morgan Stanley has a price target of $410 for AAPL stock, though in its "bull case" scenario, it could hit $540 in the next 12 months.

Ticonderoga Securities

Even with its big upside reported Tuesday, Apple's stock has "plenty of room to run," analyst Brian White believes. Even the announcement that Jobs is taking a leave of absence from the company, he said, is not expected to keep AAPL from reaching new highs.

Accordingly, White has increased his 12-month price target to $550. He sees Apple reaching that goal with the help of tremendous growth in China, where sales saw a four-fold increase year over year.

To put Apple's success in China in perspective, the company achieved revenue of $2.6 billion last quarter, accounting for roughly 10 percent of all of the company's sales. That quarterly result is not far below the $3 billion Apple earned from China in all of its 2010 fiscal year.

UBS

The Verizon iPhone will likely give the carrier its largest pre-order and sales numbers ever, analyst Maynard Um believes. With AAPL stock trading at about 15 times his earnings per share estimate, he sees the stock as a "compelling value" for investors.

The firm has increased its price target to $465, from $415. Um also expects Apple to earn $101.7 billion in revenue in fiscal year 2011, along with $23.25 earnings per share. Those totals are higher than his previous predictions of $93.7 billion in revenue and $20.08 EPS.

Gleacher & Company

Apple's gross margin results and guidance stole the show Tuesday, analyst Brian Marshall believes. He also noted the "surprise" of 7.3 million iPad sales, representing improved manufacturing capacity and market demand.

Marshall believes Apple is on its way to selling more than 30 million iPads in calendar year 2011. In its first three quarters of availability, the iPad has already topped 15 million in sales.

Gleacher has raised its calendar year 2011 estimates to $104.1 billion in revenue with gross margin of 39.4 percent and earnings per share of $24.50. The firm has also increased its 12-month price target to $400, up from $355.

Deutsche Bank

Analyst Chris Whitmore believes Apple's blowout quarter can be attributed to what he thinks is the best product portfolio in Apple's history. Accordingly, he has increased projected iPhone sales in calendar year 2011 to 67 million, up from 60 million, and has forecast sales of 30 million iPads, up from 28 million.

The firm has increased its price target to $440, with forecast earnings per share of $24 in calendar year 2011, compared to a previous prediction of $21.40. It has also introduced a projected $29 EPS in calendar year 2012.