Thursday, April 24, 2014, 06:23 am PT (09:23 am ET)
Wall Street impressed by Apple's surprise second quarter, analysts see stock headed to new highsApple's second-quarter earnings report was packed with surprises that delighted investors on Wall Street, prompting some analysts to respond by raising their price targets for the iPhone maker's stock.
Apple beat expectations by earning $10.2 billion in quarterly net profit, driven by record sales of 43.7 million iPhones. And the company went even further by announcing a 7-for-one stock split, increased quarterly dividend, and an expanded share buyback program.
Analyst reactions were positive, and some on Wall Street increased their projected price targets for AAPL stock. A roundup of their takes follows.
RBC Capital Markets
"Buy before Tim (Cook) does it himself," quipped analyst Amit Daryanani, referring to Apple's larger $90 billion stock buyback program running through December of 2015. RBC has increased its AAPL price target from $590 to $625.
Price target increases were issued Thursday by RBC, Cowen, Evercore, and Canaccord.
Daryanani is pleased with Apple's expanded capital allocation policy, which will see $90 billion in buybacks and $40 billion paid out in quarterly dividends. Apple's new dividend is $3.29 per share, and the company has signaled that it will likely be increased on an annual basis heading forward.
The analyst is also excited about Apple's commitment to entering "new product categories" in the second half of this year. RBC Capital Markets has assigned an "outperform" rating to AAPL stock and recommends that investors buy in.
Cowen and Company
Also increasing his target on Thursday was analyst Timothy Acuri, who has a new projected price of $630 for shares of AAPL. He expressed encouragement that the iPhone is once again growing in double-digit percentages, while Apple's outlook for the current June quarter was also better than the market expected.
Acuri expects even bigger gains from the iPhone later this year, when he suspects Apple will launch a new model witha larger display. He's also hopeful that Apple will launch a larger iPad model this year.
The New York Stock Exchange, credit Carlos Delgado via Wikipedia.
Rob Cihra also opted to increase his price target on Apple by $30 to $700 on Thursday. He cited international expansion of the iPhone, which has been a key driver for Apple as it continues to experience growth in its smartphone lineup.
Like his colleagues, Cihra his especially hopeful for this year's anticipated "iPhone 6" rollout, which he suspects will feature "particularly strong upgrades." He too believes Apple will draw in new customers with a larger display.
Michael Walkley's newly increased price target of $610 reflects what he sees as a "strong base with greater channel reach" ahead of the second half of calendar 2014. In particular, he sees new iPhone models with larger displays driving a "stronger than normal upgrade cycle among Apple's loyal and growing customer base."
The 43.7 million iPhone units shipped by Apple exceeded Walkley's own forecast of 38.3 million units. And the company's June quarter guidance also implies iPhone sales above his estimates, Walkley said.
Analyst Katy Huberty has been bullish on Apple for some time, telling investors that history suggests now is the time to buy in to the company's stock. She noted earlier this month that Apple stock tends to improve after periods of growth in research in development, as the company invests heavily in new product categories.
Specifically, Apple's R&D investment spiked ahead of the launches of the iPod in 2000 and 2001, before the iPhone in 2005, and ahead of the iPad in 2008 and 2009.
Huberty also believes that institutional ownership of AAPL stock is too low. And with a better-than-expected June quarter, that may start to change.
Analyst Rod Hall reiterated his "overweight" rating for AAPL stock on Thursday, coming away impressed with strong iPhone sales and improving gross margins. He also believes that Apple's 7-for-1 stock split could make the company more eligible for inclusion in the price-weighted Dow with about a 3 percent rating.
Hall remains hopeful that Apple will launch a wrist-worn "iWatch" later this year, and continues to predict that Apple will introduce a new converged laptop-tablet hybrid that could target the sub-$1,000 laptop market.
It's an "iPhone story" for Apple, analyst Charlie Wolf said Thursday. That's because of the device's out-sized revenues and gross profits, which dominate everything else in the company's lineup.
Wolf had the highest iPhone sales projection among major investors on Wall Street — 42.5 million — and Apple even managed to beat that forecast in the March quarter, hitting 43.8 million iPhones in the three-month period.
Wolf said he's encouraged that Apple's upside surprise stemmed from sales of the iPhone in emerging markets, including China, India, and Brazil.
Analyst Gene Munster has maintained his "overweight" rating for AAPL stock with a price target of $640. The strength of Apple's March quarter has encouraged him, as Munster has previously expressed concern that it and the current June quarter could be "difficult periods" for the company.
Munster said Apple's March quarter results are a sign that investors should own AAPL shares outside of a new product cycle from the company. He cited the company's high single digit revenue growth, along with its "consistent track record of returning cash to investors."
Like many of his colleagues, Munster highlighted iPhone growth in emerging markets, with sales up 28 percent in China, 61 percent in Brazil, 97 percent in Russia, 56 percent in Turkey, and 55 percent in India. Overall iPhone unit growth was up 17 percent year over year, an increase from the 7 percent growth Apple saw in the December quarter.
Analyst Brian White has maintained one of the highest price targets for shares of AAPL, at $777. He is increasingly confident in that projection with a new Apple product cycle looming in the second half of 2014.
The company's latest results should "silence iPhone naysayers," White said, with sales of nearly 44 million handsets "crushing" market expectations. White's own projections called for Apple to have shipped 36 million units, or almost 8 million less than Apple did ship.
Though Apple's March quarter was impressive, White believes anticipation for new products from the company later this year will prove more important than this week's financial results. He's hopeful that Apple's expansion into new product categories will include a so-called "iWatch."
Apple's March quarter came in "far better" than analyst Steven Milunovich expected, while the company's outlook for its June quarter is "not as weak" as he had feared.
"It appears there is more life in the iPhone opportunity than recognized," he conceded. Milunovich has maintained his "buy" rating with a price target of $625.
While others saw fit to increase their price targets on Apple, analyst Maynard Um has maintained his neutral "market perform" rating on the company's shares. Still, he told investors on Thursday that there was "plenty of good news" in Apple's March quarter, including iPhone upside, better gross margins, a larger dividend, the stock split, and an increased share buyback program.
On those positives, Um did slightly raise his "valuation range" on AAPL to between $515 and $585, both $10 higher than his previous numbers. With a $45 spike in premarket trading, shares of AAPL are already on the high end of that range, at around $570 as of Thursday morning.
Um remains concerned that gross margin will come under pressure later this year, when Apple is expected to launch a redesigned "iPhone 6." He also sees a limited amount of incremental market cap opportunity in existing product segments.
"We believe Apple will eventually approach a fork in the road where it needs to choose between ASP/margin or units, as both, in our opinion, will be difficult to maintain," he wrote.
On Topic: Investor
- As overall retail revenue declines, Apple Stores carry on original goal of growing Mac hardware sales
- Shares of Apple reach highest-ever closing price as 'iPhone 6' & 'iWatch' hype builds
- Shares of Apple hit $100 as Morgan Stanley provides strong endorsement to investors
- Apple's gross margins likely to decline this fall with new product designs, but quick rebound expected
- Shares of Apple, Inc. near ex-dividend as it gears up to distribute $2.9 billion to shareholders