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Consumers seem to be more attracted to the more expensive versions of the latest Apple iPhones than the cheaper ones.
Jack Taylor / Getty Images
Apple
produced an impressive result in the last quarter, exceeding Wall Street expectations for all major product lines, with numbers particularly high for the iPhone. And yet the stock is in the red, even with the S&P 500 heels.
The company had double-digit growth in all product categories, with record revenue in all geographic markets. He reported a large recovery in sales in China and achieved gross margins more than one percentage point higher than expected. The company continues to repurchase large amounts of shares:
Facebook
(ticker: FB) announced a $ 25 billion repurchase program on Wednesday, but Apple repurchased that number of shares only in the December quarter.
Even so, the stock on Thursday was down, while the S&P 500 was up 1.7%.
The decline came despite positive criticism from Wall Street for the quarter. Barron’s we have at least 16 analysts raising their targets for Apple’s stock price, and we may very well have lost a few.
It seems that the spectacular increase in stocks has exhausted, at least temporarily, investors. Apple shares doubled from the end of 2019 at $ 72.78 to the midday peak on Wednesday at $ 145.09, adding more than $ 1 trillion in market capitalization in the process. The business is certainly experiencing a dazzling moment, but the price may be a little ahead of the fundamentals.
Bernstein analyst Toni Sacconaghi pointed out in a research note that Apple in the quarter handily exceeded expectations for revenue and earnings per share. He’s certainly right about that. Apple posted revenue of $ 111.4 billion, an increase of 21% over the previous year’s quarter, and earnings of $ 1.68 per share. The results crushed the respective Street consensus predictions of $ 102.8 billion and $ 1.40 per share. This was driven by $ 65.6 billion in iPhone revenue, an increase of 17% over the previous year, and $ 6 billion ahead of the Street consensus.
Sacconaghi said he was surprised by consumers’ preference for the more expensive Pro and Pro Max versions of the iPhone 12. This increased both iPhone revenue and the company’s gross margins because more sophisticated phones are more profitable. He also cited “uniform strength across all hardware products, as Apple benefited from reallocating consumer spending dollars during the pandemic.”
But Sacconaghi remains cautious. While moving his target price from $ 120 to $ 132, he maintained his Market Perform rating on the stock. “Apple has had a tremendous race and is negotiating online with major technology companies with higher growth rates,” he wrote. “In the 34-fold consensus for 2021 EPS, more limited opportunities for upward revisions appear in the first quarter and, the company facing very difficult compositions and a quieter iPhone cycle next year, we struggle to see the case for superior material performance compared to current levels. ”
Many other analysts disagree.
Jefferies analyst Kyle McNealy repeated a Buy rating while raising his target price to $ 160 from $ 140. “We think Street still underestimates Apple’s 5G opportunity,” he wrote. “In our opinion, there is much more to come, as we are only at the beginning of the Apple 5G adoption cycle.” And he thinks the 5G shift will drive continued strength in the Wearables and Services segments.
Brian White, with Monness Crespi Hardt, repeated his call option and raised the target price from $ 144 to $ 170. “Apple’s strong balance sheet, the iconic brand, the rapid growth of the service business, the pipeline of innovations and the tough line on personal privacy will allow the company to come out of this crisis stronger, ”he said in a research note.
Chris Caso, an analyst at Raymond James, said something similar – that the iPhone 5G cycle will last for a while and benefit other Apple businesses.
“The company delivered on all fronts, including iPhone, Macs, wearables and services,” wrote Caso. “And a richer iPhone mix had the benefit at the margins we expected. Although Apple has completed this cycle, we have long considered it a 2-year 5G cycle, with better global 5G coverage providing greater incentive for updates, along with what we hope will be a new form factor. ”
He said he expects the services business to benefit as Apple sells more devices, increasing the number in use and adding new service offerings. ” He maintained an Outperform rating for the stock and raised his price target from $ 150 to $ 160.
Playing with the news of the short squeeze
GameStop
stock (GME), Evercore ISI Amit Daryanani said in his analysis of the quarter that “there is no need for mentions of Reddit with performance like this.” He said the company’s forecast of a seasonal decline in revenue for the December quarter does not reflect an easing of the Covid-19 crisis or the arrival of additional stimulus checks.
Both factors can be “considerable drivers” for gains, said Daryanani. And he noted that the company not only produced higher than expected gross margins, but said it would sustain the new level in the current quarter. He repeated his Outperform rating, while raising his target price from $ 160 to $ 163.
But perhaps Apple could actually use some mentions from Reddit. The shares fell about 2% to $ 139.28 on Thursday.
Write to Eric J. Savitz at [email protected]