Wall Street relieved by Apple's strong guidance for holiday quarter
Concerns that the iPhone 6s upgrade cycle could post first-ever year over year sales declines were alleviated this week, when Apple indicated it expects iPhone sales will grow yet again this holiday quarter. Analysts on Wall Street reacted to the news positively, advising investors to buy in.
Apple reported a record September quarter on Tuesday, earning $51.5 billion in revenue and $11.1 billion in net profit on sales of 48 million iPhones and 5.7 million Macs. But many analysts were more focused on the company's current December quarter, which Apple guided to revenue between $75.5 billion and $77.5 billion.
Wall Street reacted positively to the news, sending shares of AAPL up in after-hours trading Tuesday, and continuing into early morning trading on Wednesday.
Piper Jaffray, UBS, J.P. Morgan, FBR & Co. & Wells Fargo Securities all advise investors to buy in on AAPL.
Analysts also heaped praise on the iPhone maker in issued to investors after the earnings report, and AppleInsider offers a summary of their takes.
To analyst Gene Munster, Apple's guidance was a "relief," after some investors were bracing for a potential decline in iPhone sales. Specifically, Apple Chief Executive Tim Cook said he fully expects that iPhone sales will grow year over year in the current December quarter.
Some on Wall Street were forecasting that sales could decline between 5 and 8 percent year over year, Munster said. Investors have been concerned that the iPhone 6s cycle, with an external product appearance largely identical to the iPhone 6, would see consumer interest wane.
"The set up for the next 12 months is positive as comfort in the 6s cycle will allow investors to increase their optimism around the iPhone 7, along with a growing multi-year tailwind from iPhone upgrade cycles compressing and a potential Apple Watch acceleration in late 2016," he wrote.
Piper Jaffray has raised its price target on AAPL stock to $179.
The key reasons to own Apple stock are record switchers from Android handsets to the iPhone, as well as gradual upgrades continuing through the iPhone 6s cycle, analyst Steven Milunovich said.
He expects iPhone growth in the December quarter, but investors remain concerned about March. Milunovich is modeling a 21 percent sequential decline in revenue in the March quarter, but said that Apple could be helped by continuing switchers and the Chinese New Year.
Long-term, he views Apple as a more annuity-like company, with a belief that upgrade programs should make user upgrade cycles both shorter and more consistent.
UBS has maintained a "buy" rating on AAPL with a $150 price target.
Analyst Rod Hall's proprietary iPhone upgrade model has been predicting 1.4 percent unit growth in the December quarter — a number that he noted is consistent with Apple's guidance. On Wednesday, he bumped that forecast up to 2 percent.
Hall's estimates call for iPhone units to grow more than 7 percent in calendar year 2016 — Â a number higher than most of his contemporaries on Wall Street.
The analyst was also encouraged by continued strong growth in China, and Cook's suggestion that the Apple iPhone Upgrade Program could expand beyond its own stores and into other countries.
UBS has maintained an "overweight" rating for AAPL with a price target of $145.
FBR & Co.
Apple's September quarter earnings were "a major step in turning the positive tide around the Apple story," analyst Daniel Ives said.
He was particularly impressed that Apple is forecasting year-over-year growth in the December quarter, despite what he called "Herculean" comparisons from the same period a year ago.
While a so-called "iPhone 6 hangover" still lingers, Ives believes there is continued room for growth with the iPhone. To him, the September quarter was a "pivotal inflection point" for the company.
FBR has maintained an "outperform" rating with a $175 price target for Apple.
Wells Fargo Securities
iPhone units could be better than Wall Street expects in both the December and March quarters, analyst Maynard Um believes.
Apple now defers $5 to $10 less per iOS device, which should help margins, and Um believes Apple will use that extra leverage to drive sales of its entry level iPhone 5s, pushing unit sales higher over the next two quarters.
Um also believes Apple's gross margin guidance of between 39 and 40 percent for the December quarter could actually prove conservative.
Wells Fargo has kept its "outperform" rating for Apple with a valuation range of $125 to $135.
Cowen and Company
Unlike most of his peers, analyst Timothy Arcuri was not particularly impressed with Apple's September quarter and December guidance.
He characterized iPhone units as "okay but not great," and said guidance for the next quarter was "down the middle of the fairway."
Cowen downgraded AAPL stock to "market perform" last quarter, and Arcuri has maintained that following this week's earnings report. To him, Apple's "beat and raise" strategy has given way to a "holding pattern" with simply "okay" estimates.
Cowen and Company has held its price target of $135.
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