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Consumers seem to be more attracted to the more expensive versions of Apple’s latest iPhones than the cheaper ones.
Jack Taylor / Getty Images
Apple
delivered a staggering last quarter result, exceeding Wall Street expectations for every major product line, with particularly good figures for the iPhone. And yet the stock is in the red even when the S&P 500 jumps.
The company experienced double-digit growth in every product category, with record sales in every geographic market. It reported a massive rebound in sales in China, achieving gross margins more than a full percentage point higher than expected. The company continues to buy back massive amounts of stock:
Facebook
(ticker: FB) on Wednesday announced a $ 25 billion buyback program, but Apple bought back so many shares in the December quarter alone.
And yet, the stock fell on Thursday as the S&P 500 rose 1.7%.
The decline came despite rave reviews from Wall Street for the quarter. Barron’s counted at least 16 analysts raising their targets for Apple’s stock price, and we may have missed a few.
It seems that the spectacular run-up in stocks has at least temporarily exhausted investors. Apple shares doubled from the end of 2019 at $ 72.78 to its Wednesday afternoon peak at $ 145.09, adding more than $ 1 trillion in market cap. The company is certainly experiencing an amazing moment, but the price may be a little bit ahead of fundamentals.
Bernstein analyst Toni Sacconaghi pointed out in a research note that Apple exceeded expectations for both revenue and earnings per share in the quarter. He is certainly right about that. Apple posted sales of $ 111.4 billion, an increase of 21% from the same quarter last year, and profit of $ 1.68 per share. The results crushed the respective Street consensus projections of $ 102.8 billion and $ 1.40 per share. That was driven by $ 65.6 billion in iPhone revenues, 17% more than a year earlier, and $ 6 billion more than the Street consensus.
Sacconaghi said consumer preference for the more expensive Pro and Pro Max versions of the iPhone 12 caught his eye. That boosted both the company’s iPhone revenues and gross margins as the more expensive phones are more profitable. He also cited “the unified power of all hardware products, as Apple benefited from the reallocation of consumer spending during the pandemic.”
But Sacconaghi remains cautious. Moving his target price from $ 120 to $ 132, he kept his Market Perform rating on the stock. “Apple has had a great run and is trading in line with major technology companies with higher growth rates,” he wrote. “With 34 times the consensus of earnings per share for 2021, more limited opportunities for upward revisions after the first quarter and as the company faces very difficult compositions and a more muted iPhone cycle next year, we are struggling to outperform material. compared to current levels. “
Many other analysts disagree.
Jefferies analyst Kyle McNealy reiterated a Buy rating as he raised his price target from $ 140 to $ 160. “We think The Street still underestimates Apple’s potential with 5G,” he wrote. “In our opinion, there is much more to come, as we are only in the first innings of Apple’s 5G adoption cycle.” And he thinks the 5G shift will bring lasting power to both the Wearables and Services segments.
Brian White, with Monness Crespi Hardt, reiterated his Buy call and raised his target price from $ 144 to $ 170. “Apple’s strong balance sheet, iconic brand, booming services business, innovation pipeline and tough stance on personal privacy will enable the company to emerge stronger from this crisis, ”he said in a research note.
Raymond James analyst Chris Caso made a similar point – that the 5G iPhone cycle will take a while and Apple’s other companies will benefit from it.
“The company delivered on all fronts, including iPhone, Macs, wearables and services,” Caso wrote. “And a richer iPhone mix had the margin advantage that we expected. While Apple has performed in this cycle, we have long considered this a 2-year 5G cycle, with better global 5G coverage providing greater incentive for upgrades, along with what we expect to be a new form factor. ”
He said he expects the service company to benefit as Apple sells more devices, increases the number in use, and adds new service offerings. He maintained an Outperform rating on the stock and raised his target price from $ 150 to $ 160.
The news of the short squeeze in play
GameStop
stock (GME), Evercore ISI Amit Daryanani said in his review for the quarter that “Reddit entries with such performance are unnecessary.” He said the company’s forecast of a seasonal decline in sales from the December quarter does not reflect any relief from the Covid-19 crisis or the advent of additional stimulus controls.
Both factors could be “significant drivers” of profit, Daryanani said. And he noted that not only was the company producing higher-than-expected gross margins, but said they would maintain the new level in the current quarter. He reiterated his Outperform rating as he increased his target price from $ 160 to $ 163.
But maybe Apple could actually use a few Reddit entries. Shares fell about 2% to $ 139.28 on Thursday.
Write to Eric J. Savitz at [email protected]