Cantor Fitzgerald Equity Research Brian J. White rates Apple Inc. (NASDAQ:AAPL) as a Buy as the Cupertino-based company reported better-than-expected 1Q:FY14 (ended December) results.

Apple AAPL earnings

Apple Inc. (NASDAQ:AAPL) just reported 1Q:FY14 (ended December) results, and the company is hosting a conference call at 5:00 PM ET. Apple delivered healthy EPS upside in 1Q:FY14 on better-than-expected margin performance but sales missed our projections on softer-than-anticipated iPhone shipments, while the company’s 2Q:FY14 sales outlook is below our projections and the Street. We believe this soft 2Q:FY14 outlook could provide Carl Icahn with more ammunition in pushing through his increased stock repurchase program.

Apple delivers EPS upside in 1Q:FY14

Apple Inc. (NASDAQ:AAPL) just reported 1Q:FY14 sales of $57.6 billion that fell short of our revenue estimate of $58.6 billion but met the Street estimate (FactSet consensus was at $57.5 billion), while pro forma EPS of $14.50 was better than our $14.31 projection and the Street’s $14.09 estimate. Recall, Apple’s original 1Q:FY14 outlook called for sales of $55-58 billion.

Gross margins well above projections

Apple Inc. (NASDAQ:AAPL) delivered 1Q:FY14 gross margin of 37.9% (vs. 37.0% in 4Q:FY13), better than our 37.2% estimate and up from the 37% in 4Q:FY13. Operating margin of 30.3% was well above our 29.6% projection and sharply higher from the 26.8% print in 4Q:FY13. Operating profit of $17.46 billion was better than our estimate of $17.3 billion. Apple generated $22.7 billion in operating cash flow during 1Q:FY14 and ended the quarter with $141.9 billion in net cash.

Upside in iPad but iPhone comes up short

Apple Inc. (NASDAQ:AAPL) reported 1Q:FY14 iPhone unit sales of 51 million that missed our estimate of 53.5 million, while iPad units reached 26 million units and beat our 24.5 million projection. Mac unit sales came in at over 4.8 million units and were above our 4.6 million projection.

A conservative 2Q:FY14 sales outlook

Apple Inc. (NASDAQ:AAPL) expects 2Q:FY14 sales of $42-44 billion vs. our revenue estimate of $47.2 billion (Consensus is at $46.1 billion), while gross margin is expected at 37-38% with operating expenses of $4.3-4.4 billion. Using the mid-point of Apple’s 2Q:FY14 outlook, we can back into EPS of approximately $9.80-$9.90 vs. our estimate of $11.43 (Consensus at $10.97). Our estimates and price target are currently under review.

Apple’s valuation

Our $777 price target is based on nearly 14x our CY:14 pro forma EPS estimate (adjusted for interest income/expense), plus Apple Inc. (NASDAQ:AAPL)’s net cash per share of $142.77.