Apple Inc. (AAPL) stock has climbed by the highest percentage in a single day than what we’ve seen in a while following last night’s earnings report. Analysts are in heaven as the iPhone maker finally proved that it won’t let them down—even amid signals that the iPhone wasn’t selling very well. Apparently those signals were just plain wrong, as the company returned to growth and posted another record quarter.
Apple (AAPL) stock drives Dow upward
The Dow Jones Industrial Average has been a big story, as it recently topped 20,000 for the first time, and Apple Inc. (AAPL) stock helped it along for a big gain early this morning. The iPhone maker’s giant size has a massive impact on indices such as the Dow and the S&P 500 because of its weight. MarketWatch estimated that the $4.74 gain in Apple Inc. (AAPL) stock in this morning’s premarket hours would have added about 32 points to the Dow Jones.
Prescience Partners returned 6.75% for the second quarter, underperforming the S&P 500's 8.55% return but coming out ahead of the Barclay Equity Long/ Short Index's 2.62% return. However, for the first six months of the year, Prescience is up 30.66%, doubling the S&P's 15.25% return and smashing the Barclay Equity Long/ Short Index's 9.27% return. Read More
Dow futures rose approximately 41 points, and Apple Inc. (AAPL) stock drove to an 18-month high, vindicating bulls and causing the few who bought bearish options to lose their investments. During regular trading hours today, the iPhone maker’s shares rose by as much as 5.75% to $128.33.
iPhone 7 surprises drive record results
Apple Inc. (AAPL) reported $78.35 billion in revenue, beating the consensus of $77.12 billion, and pro forma earnings per share of $3.36, beating the Street’s $3.21 estimate. The company had guided for $76 billion to $78 billion in revenue, implying earnings per share of $3.17. It sold 78.3 million iPhones during the December quarter, also coming out ahead on consensus. The average selling price amounted to $695, beating the consensus of $685 amid a strong mix of iPhone 7 Plus units, as most analysts had expected.
However, guidance disappointed, at $51.5 billion to $53.5 billion in sales. The iPhone unit consensus for the March quarter stands at 53 million, but the sales numbers suggest that Apple Inc. (AAPL) might come up short of that.
A flood of price target increases for Apple (AAPL) stock
The results unleashed a flood of price target increases for Apple Inc. (AAPL) stock as analysts found very little to take issue with. UBS analyst Steven Milunovich boosted his target from $127 to $138 per share, while Stifel analysts raised their target from $115 to $130 per share, although they believe investors will question just how much of an impact the extra week in the quarter had on the company’s results.
Cannacord Genuity analyst T. Michael Walkley bumped up his price target for Apple Inc. (AAPL) stock by $2 to $142 per share and said in his note that the strong unit growth sets the stage for strong long-term earnings growth. He said the iPhone installed base surpassed 570 million exiting 2016, and he continues to expect a stronger upgrade cycle this year with the 10-year anniversary iPhone 8 expected in September.
Other price target increases for Apple Inc. (AAPL) stock include Pacific Crest, which raised its target from $127 to $140 per share. RBC Capital Markets analysts moved from $125 to $140 per share, while Mizuho analysts bumped up their target for Apple stock from $130 to $135.
About those services…
Aside from the iPhone 7, Apple’s services revenue turned out to be another big star, as it reached $7.2 billion in the December quarter—a new record. The company expects to double its services revenue over the next four years due to the growing iPhone installed base, paired with rising average revenue per user.
While some analysts have argued in the past that Apple should be considered a “services” company, Milunovich disagrees. However, he agrees that the services segment has come a very important part of the total picture, with increases at more than a 60% gross margin. He’s “encouraged” that Apple Inc. (AAPL) recorded double-digit growth in the number of services customers and average revenue per user.
Even with the strong earnings last night, analysts from must firms are still looking forward to the iPhone 8 later this year. Walkley expects a new form factor to drive demand this year, although Milunovich backed off slightly from the “super cycle” thesis. He said it will at least be “strong if not super cycle.” He does expect the iPhone 8 to bring double-digit unit growth if there is enough supply of OLED displays and if buyers don’t decide not to buy one due to the higher price that’s expected.