Apple (AAPL) stock enjoyed healthy gains in the days following the company’s earnings reports, and analysts crooned over the results. But not everyone was so thrilled, with some pointing out the fact that the December quarter had an extra week and others focusing on the challenges being seen in the smartphone market.
Nonetheless, analysts are as happy as can be and continue to try to sell investors on the iPhone 8 cycle. At least one analyst has boosted his price target for Apple (AAPL) stock based on the record iPhone unit number in the December quarter.
Apple (AAPL) stock target to $154
Canaccord Genuity analyst T. Michael Walkley raised his price target for Apple (AAPL) stock by more than $10, from $142 to $154 per share in a research note dated Feb. 6. He feels the company took a “strong share” of the premium end of the world’s smartphone market during the December quarter, as it generated 92% of profits. That is a decline from 106% of the profits in the September quarter, however, because Samsung’s profits improved after the Galaxy Note 7 recall.
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Apple (AAPL) sold 78.3 million iPhones with an average selling price of $695 during its first fiscal quarter as consumers preferred the more expensive iPhone 7 Plus models. Walkley also believes the iPhone maker benefited from the Note 7 recall—although there was some debate about that before the results were released. Apple (AAPL) management said the quarter had the highest quarterly number of switchers from Android, something that third-party data indicated just before the release.
The analyst also expects the iPhone 7 lineup to continue doing well, bridging the gap until the iPhone 8 is released, probably in September.
Buying Apple stock, punishing Amazon
Despite Walkley’s (and almost everyone else’s) enthusiasm about Apple (AAPL) stock, Neil George, a contributor for The Street, feels investors are doing nothing more but attending the “church of Apple.” Investors dumped Amazon stock immediately following the retailer’s earnings results (although the shares are up today), but they have been happily slurping up Apple stock.
He said the iPhone maker “is faced with a dwindling market share and shrinking margins,” which means it just doesn’t make sense to be so enamored with the company. Meanwhile, Amazon recorded soaring revenues and the seventh consecutive profitable quarter. There’s also new data from Slice Intelligence indicating that the company hoards 53% of all growth in U.S. online sales.
Did Apple take investors for a ride?
George argues that Apple (AAPL) “pulled off a sleight of hand” by adding the extra week in the December quarter—an argument also made by Thomas H. Kee Jr. on MarketWatch. According to Kee, to make up for that extra week, the company would have had to report about $3.53 per share in earnings rather than the $3.38 per share it reported.
He also estimates that revenue should have been about $81 billion rather than the $78.4 billion that was reported. Based on his weekly calculations, the company grew at a 4.11% slower rate in the most recent December quarter than it did in the same quarter in 2015. Kee argued that Apple’s growth rate contracted rather than grew in the most recently completed quarter and that it only looks like it did because of that extra week.
George highlighted other “problems” he sees at Apple as well, like the contracted gross margin, which fell to 38.5% from 40.1% in the year-ago period. The iPhone maker also saw its sales in China, the world’s biggest market, fall 12% in the December quarter, reducing its market share there to 9.6%. He said the company’s global market share has fallen as well, down to 11.5%.
iPhone 8 might not be a “supercycle” after all
Apple (AAPL) is widely expected to launch the tenth anniversary edition of its smartphone under the iPhone 8 moniker, and most firms have been calling this cycle a “supercycle” because they’re expecting tremendous growth. However, one analyst that’s been calling for a supercycle is starting to back off from that theory and suggests now that the next cycle will be one of “smooth” growth rather than anything of the “super” variety.
UBS analyst Steven Milunovich said in a research note dated Feb. 7 that he’s now “smoothing” out his assumptions for iPhone growth over the next couple of years and adopting “less of a supercycle view” for fiscal 2018.” He noted that it should be expected for product cycles in a maturing market to become muted, so he’s cutting his iPhone unit growth estimate from 16% to 12% for fiscal 2018 and boosting his fiscal 2019 estimate from a 2% decline to a 7% increase. Despite this smoothing out, he’s still expecting the iPhone 8 cycle to bring greater growth than the fiscal 2019 cycle.
He feels that it could be more beneficial for Apple (AAPL) stock’s multiple if the company experiences more gradual growth because investors might be encouraged to see the company’s hardware and services revenue combined as an annuity.
Shares of Apple (AAPL) stock rose by as much as 0.19% to $131.78 during regular trading hours on Wednesday.