Apple Inc. (NASDAQ:AAPL) handily beat analyst expectations in this week’s earnings report as iPhone sales and gross margins exceeded analyst estimates. As a result, analysts at FBN Securities have bumped up their price target from $625 to $650 per share and reiterated their Outperform rating in a research note dated April 24, 2014.
Analysts remain bullish on Apple
Analyst Shebly Seyrafi expected Apple Inc. (NASDAQ:AAPL) stock to perform well on Thursday, and indeed it did, climbing by around $40. The company reported gross margins of 39.3%, compared to guidance of between 37% and 38%.
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Apple Inc. (NASDAQ:AAPL) also reported iPhone shipments of 43.7 million, which is a 17% increase year over year. Seyrafi called that number “remarkable.” The FBN analyst expected, as others did, that iPhone sales would be weak in the March quarter because of all the anticipation leading up to the bigger iPhone 6. Many believe a 4.8-inch and a 5.5-inch model will be released this year, possibly in September. However, we have heard rumors that the 5.5-inch model will be delayed because of a variety of problems.
The FBN team believes Apple Inc. (NASDAQ:AAPL)’s sales to China Mobile were strong, as revenue in Greater China rose 13% year over year. However, they note also that the company did quite well in Japan, probably due to the addition of NTT DoCoMo, the country’s largest carrier. Sales in Japan rose 26% year over year.
Apple more friendly to shareholders
Apple Inc. (NASDAQ:AAPL) also caved into continued demands that it increase capital returns to shareholder. The company increased the amount it will spend on share repurchases and dividends through December 2015 up to $130 billion. This raised the targeted amount from $60 billion to $90 billion. Seyrafi had been expecting Apple to up its capital return plan but calls this increase a “large” one.
The company also revealed that it would perform a seven for one stock split for shareholders of record on June 2, which would put the price down to $80 a share and probably convince smaller investors to get into the company.
iPad sales looked weak
The analyst noted that iPad sales were weaker than expected but also that the company reduced its channel inventory by 1.1 million quarter over quarter. That differs from last year at this time when Apple Inc. (NASDAQ:AAPL) increased its inventory by 1.4 million. However, Seyrafi thinks Android tablets are weighing heavily on iPad volumes and expects that the larger iPhone 6 will cannibalize iPad sales. The FBN team is now expecting weaker iPad sales than they previously were. Although they believe an even larger iPad could be coming this year, they see the market for such a device as being limited.