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"Apple iPhone Sales, Up 35%, Disappoint Investors" —Wall Street Journal

Only Apple could grow revenues 33%, sock away $202 billion in cash, gain market share in nearly every product line and still trigger a run on the stock. The sell-side analysts will now explain to investors why they should be buyers, not sellers.

Below: Excerpts from the notes we’ve seen so far. More as they come in.

Brian White, Cantor Fitzgerald. Plenty of Reason to Stay the Course. “Last night, Apple delivered upside in the June quarter with EPS beating our estimates, but the market was looking for a bit more juice from iPhone units. In our view, Apple is still in the midst of a transformational, super cycle with the first new product category in five years with Apple Watch, a multi-year iPhone cycle given the larger form factor, big momentum in China, potential new areas of innovation (e.g., streaming TV, growing interest in the car), and a rapidly expanding digital matrix (e.g., Apple Music, Apple Pay, CarPlay, etc.). We believe Apple’s future prospects have never been brighter, and the stock is trading at just 10.3x our CY:16 EPS projection (ex-cash).” Buy. $195.

 

Toni Sacconaghi, Bernstein: A Case of Over-Zealous Expectations or the Beginning of an Inevitable Slowdown? “We understand the stock’s aftermarket reaction. Despite trading at a discount to the market, Apple’s stock is largely shaped by revisions, and Q3 results nor guidance points to meaningful upward revisions. Moreover, investors also noted that Apple’s conference call appeared less ebullient and a bit more defensive in tone than recent calls, that the company’s GM beat was lower than recent quarters and Apple did not hint at or signal any new imminent product or service introductions. That said, various analyses suggests that Apple’s quarterly performance (particularly in iPhone) did not show incremental signs of weakness.” Outperform. $142.

Katy Huberty, Morgan Stanley: Solving the [FQ3] Puzzle. “While total company and iPhone revenue growth accelerated in the June quarter, iPhone units missed expectations. Solving for the factors that drove the miss suggests a decent 2H15 set-up, in our view… iPhone revenue growth accelerated, as did growth in Greater China, Japan and Europe in the quarter, suggesting demand remains strong despite volatile currency and equity markets during the period. We view the 2.5M iPhone unit miss versus our model as a function of management taking a conservative approach to channel inventory in light of currency volatility and related price actions. With demand strong despite these price increases in many regions, we see a path for channel inventory build in 2H15 that further supports our view that iPhone units can grow Y/Y.” Overweight. $155.

Timothy Arcuri, Cowan: Every Rose Has Its Thorn. “While mgmt. commentary sought to re-assure, iPhone units were light even adjusting for channel inventory. Normally, this would not concern us but evidence of a widespread demand reset from China is mounting (auto #s, UTX, FCS, LLTC to name a few from what we watch). In time, we expect new service offerings will ultimately pull through meaningful hardware sales, but for the near and even medium-term, iPhone units remain the key driver for the stock. On that front, our field work continues to suggest that builds are tracking down cycle/cycle for the first time in a new iPhone launch and, while we are very bullish about AAPL’s ability to tap into a much broader and deeper demand opportunity for a price-reduced 6/6+ than prior ‘old’ models, this is a different narrative. Downgrading to Market perform. Reducing price target to $130 from $140.

Sundeep Bajikar, Jefferies: Is Brand Power in China Sustainable? “iPhone shipments of 47.5m missed the buy-side bogie (and our own recent checks suggesting upside) of ~53m, and drove a stock selloff after market. iPad and Watch performance was also below expectations. September quarter guidance was roughly in line, and signals YoY deceleration, which is unlikely to help the stock’s valuation multiple near term. We believe Apple is trying to accelerate its transition from a tech brand to a hybrid tech-luxury-fashion brand, and the process may require the introduction of new product categories, as well as further changes in retail/merchandising. Hold. $135.

Andrew Uerkwitz, Oppenheimer: Apple Defied Macro Headwinds with Another Solid Quarter. “Apple showed another quarter of strong product growth in both developed and emerging markets, despite FX headwinds and broad weakness in the consumer electronics industry. We believe Apple’s ecosystem appeal is only beginning to be understood by its customers and its growing portfolio of best-in-class services and peripheral devices will help the brand to sustain long-term share gain across hardware product categories.” Outperform. $155.

Mike Walkley, Canaccord Genuity: Apple draws down iPhone channel inventory ahead of new product launch. “We believe the slightly lower than anticipated iPhone unit sales reported in the June quarter and implied in the September quarter guidance were primarily due to Apple lowering channel inventory ahead of the next-generation iPhone launch likely exiting the September quarter. In fact, with only 27% of the iPhone installed base having upgraded to the iPhone 6/6 Plus devices by Q3/1F’15, we anticipate continued strong replacement sales through 2015.” Buy. $150.

Avi Silver, CLSA: It’s all (still) good. “We do not believe there is a fundamental problem with the iPhone results, but rather a game of expectations run amok. While a lack of upside to iPhone units and gross margin were disappointing, we continue to view the underlying iPhone trends as healthy with market-share gains and rising ASP. Despite lowering our Apple Watch estimates (3.1m units vs our 3.5m estimate), our comfort level with FY16 growth and margin expansion remains intact. Buy. Lowering price target to $159 from $163.

Sherri Scribner, Deutsche Bank:(Via Barrons). ”Given iPhone drives the vast majority of sales and profit, softer iPhone units were a disappointment. We continue to remain concerned that AAPL’s smartphone market share is peaking, and expect iPhone unit growth to decelerate next year on more difficult compares.” Hold. $125.

Maynard Um, Wells Fargo: High Expectations And Cycle Uncertainty The Issues. “In a vacuum, Apple’s results were good, particularly when accounting for the potential impact higher pricing due to currency may have had on units. However, relative to expectations, results and guidance were disappointing, particularly with respect to iPhone units, where expectations were heightened by the supply chain as well as anticipation of indirect channel fill. We maintain our Market Perform given September qtr is a product transition qtr, tough comps coming, volatility in China, our expectation for less meaningful differentiation in 6s cycle (similar form factor), and lack of new material carriers to add.” Market perform. Valuation range: $125-$135.

Gene Munster, Piper Jaffray: Despite Noise, Critical Themes Intact. “We are buyers on the 6% aftermarket pullback on shares of AAPL based on the belief that Apple will continue to gain share in the high-end smartphone market and margins will expand into the S cycle resulting in Street numbers inching higher over the next several quarters. While some investors will view the 48.1 million iPhones (ex channel drain) as a disappointment below investor thinking for more than 49 million units, the reported unit sales represent significant market share gains. For the Watch, we estimate Apple sold around 2.5 million units, which was in-line with investor expectations.” Overweight. $172.

Aaron Rakers, Stifel: Buyers on Weakness. “While Apple’s iPhone ship at 47.5M … is likely to be considered a net-negative, we believe there are several positives: 1.) iPhone blended ASP ($/unit) at $660 vs. our $645 estimate; +$99 yr/yr driven by strong iPhone 6+ mix (note: includes a $24 yr/yr negative FX impact). 2.) Greater China – revenue +112% yr/yr … w/ iPhone ship +87% yr/yr … 3.) Apple reported that ~27% of the iPhone installed base represents consumers having upgraded to iPhone 6/6+; company also seeing the highest Android-to-iPhone switching rate ever. 4.) [free cash flow] totaled $12.945B … +64% yr/yr. Buy. $150.

Daniel Ives, FBR: Not the Number Bulls Were Hoping For. “Apple delivered headline numbers modestly beating the Street but softer than bullish Street expectations on the heels of an in-line iPhone number. As Apple has become the ‘gold standard’ of technology, it is held to a higher standard; thus, investors will be disappointed this morning by a good, but not great, iPhone shipment number… While China impressively grew 100%+ and remains the main fuel in the company’s engine, now Apple becomes a bit of a ‘prove me’ stock, as the Street needs to feel comfortable that the iPhone 6/6 Plus growth story is alive and well.” Outperform. Lowering price target to $175 from $185.

Walter Piecyk, BTIG: No Change To Apple Estimate As Higher iPhone ASPs Offset Lower Watch Estimates. “Investor focus should now fall squarely on the timing and details of the next iPhone launch and whether the company can deliver growth on top of the record-breaking FQ1 of 2015 when Apple sold 74.5 million phones. We think they can sell over 80 million iPhones this holiday season and hence continue to recommend the stock.” Buy. $160.

Neil Cybart, Above Avalon. “Apple reported strong 3Q results due to sustained iPhone 6 and 6 Plus sales momentum throughout the world, especially in China, Europe, Japan, and emerging markets. Revenue growth would have been 41% excluding FX impact, which is downright remarkable given Apple’s size. Not only are larger screen iPhones resonating with consumers, but they continue to provide Apple with margin expansion and pricing power. The iPhone 6 Plus may end up impacting the smartphone landscape more than any other phone in the market. While Apple gave enough clues to reach Apple Watch sales of between 2-3 million units, it is simply too early to draw any long-term conclusions about the device’s sales potential.”

Trip Chowdhry, Global Equities Research: Apple Beats consensus Revenues by $4.4 Billion in Constant Currency. “On the Conference Call, Apple CFO mentioned that the June quarter Revenues are 800 bps higher in Constant Currency. In Constant Currency, Apple Revenues are $53.73 Billion (vs consensus of $49.3 Billion) and EPS is $2.54 (vs consensus of $1.81). With such a massive beat of $4.4 Billion vs. Consensus, there was no need for Apple to ship any more iPhones in the Quarter.

Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple AAPL coverage at fortune.com/ped or subscribe via his RSS feed.

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