Technology

Wall Street Analysts Are Chasing Apple Stock Up, Up and Away

Jon C. Ogg

Published: August 2, 2017 10:25 am

Last Updated: January 12, 2020 9:32 am

Apple Inc. (NASDAQ: AAPL) beat earnings expectations and gave solid guidance, and the rise in its shares was the push that allowed the Dow to hit 22,000 for the first time ever. While Apple’s earnings were stronger, the one key issue to consider is that the speculation of any serious delays to the highly anticipated iPhone 8 will now be put to bed.

24/7 Wall St. covered the earnings report in detail, and we have condensed that data here. What stands out now is that almost every analyst call we have seen is calling for upside — and many analysts have raised their official price targets for Apple shares.

The technology giant posted quarterly diluted earnings per share of $1.67 on revenues of $45.4 billion. Thomson Reuters consensus estimates were $1.57 per share and $44.89 billion in revenues. Perhaps the most important metric in the report, iPhone sales, totaled 41.03 million in the quarter, up from 40.4 million in the same period last year. Sequentially, unit sales dropped by 19% from 50.76 million, and iPhone revenues dropped by 25% to $24.85 billion.

For the fourth quarter of 2017, Apple said it expects to post revenues in a range of $49 to $52 billion with a gross margin of between 37.5% and 38%. Consensus estimates for the September quarter are $1.81 per share in earnings and revenues of $49.21 billion. If one feat can be claimed here, Apple now holds a whopping $262 billion in liquidity (cash and short-term to long-term securities). Apple’s international sales are still more than 50% of its operation now.

Again, most analysts remain positive, with Buy or Outperform type of ratings. Even in the more cautious Hold and Neutral ratings, many analyst calls showed larger price targets. These have been outlined in detail.

Merrill Lynch reiterated its Buy rating with a $180 price objective. Merrill Lynch sees fourth-quarter revenues of $49 billion to $52 billion depending on the number of iPhone 8 models that Apple can make and ship and on channel inventory growth. The firm noted that Apple’s gross margins held up well in the third quarter despite iPhone average selling price pressure given contribution from Services. It also is modeling higher iPhone average selling prices in the September and December quarters.

Credit Suisse reiterated Apple’s Outperform rating and raised its target to $175 from $170. Credit Suisse’s view is that the services thesis remains alive and well. Apple’s services growth was a robust 22% from last year, driven by strong App Store sales. Management also believes that the Services sales will double over the next four years as App Store sales, an inflection in the music revenues and iCloud can all help drive the services from about 20% to one-third of the business.

S&P’s CFRA reiterated its Buy rating on Apple and raised its target to $175 from $170. Its report showed that the September quarterly guidance implies 11% sequential revenue growth and likely indicates that the new iPhone launch actually will be in September after prior speculation about new iPhone delays. CFRA also thinks that further services growth could result in Apple’s multiple expansion, and the firm sees upside to the consensus estimates ahead.

Other key analyst calls seen, with some brief notes rather than full detail, were as follows:

• Barclays only maintained an Equal Weight rating but still raised its target to $146 from $123.
• BMO Capital Markets reiterated its Outperform rating and raised its target to $180 from $170.
• Bernstein reiterated its Outperform rating and raised its target from $170 to $175.
• Deutsche Bank has a Hold rating but the firm raised its target from $132 to $140.
• Instinet has a Buy rating and raised its target to $175 from $165.
• Loop Capital has a Buy rating and raised its target to $180 from $172.
• Raymond James raised its target to $170 from $163.
• RBC Capital Markets has an Outperform rating but raised its target from $168 to $176.
• UBS reiterated its Buy rating and raised its target to $180 from $170.

It was also worth a look to see that short sellers have gotten out of Apple’s way. The consensus was 160 million iPhones to be sold this year.

Apple was up 0.9% at $150.05 going into its earnings release, and it had a prior 52-week range of $102.53 to $156.65. Apple shares were up 4.8% at $157.31 mid-morning, though Apple hit a new all-time high of $159.75 right after the open.