Excerpts from the notes we’ve seen. Gotta love Berenberg’s “sell” with a price target of $60 per share.
Toni Sacconaghi, Bernstein: The iPhone 6 Super Cycle is Indeed Super… Still More Room on This Ride? “Apple’s FY Q1 were a blow-out, with iPhone sales topping even the most nose-bleed buyside expectations… Apple generated a staggering $30B in [free cash flow] in FQ115, or roughly 2.5x IBM’s annual FCF… in one *quarter*. Outperform. Raising target to $135 from $122.
Ben Schachter, Macquarie: Wow! “Despite wildly bullish iPhone sentiment all quarter long, AAPL still managed to positively surprise. iPhone posted remarkable numbers (how many $100bn growth businesses do you know that accelerated?), Macs were okay, iPads were weak, and our focus area of Apps grew a solid 41% y/y (though this was expected given the Jan. 8 press release on App Store sales). Guidance was also better than expected despite FX headwinds. Outperform. $130.
Aaron Rakers, Stifel: Strong / Sustainable GM% Outlook. “In addition to iPhone momentum / upside, which some are likely to debate as being somewhat anticipated, believe the company strong GM% at 39.9% and F2Q15 guide at 38.5%-39.5% (including a 100bps FX headwind) should be viewed as an incremental positive. We would also highlight Apple’s FCF at $30.5B, or an astonishing $60.0B on a TTM basis (setting the table for a capital return raise in April).” Buy. $130.
Rod Hall, JPMorgan: iPhone Blowout Drives Beat but FX Keeps the Raise at Bay. “Apple managed an incredible manufacturing feat by shipping 74.468m iPhones in FQ1 representing an 89.6% Q/Q unit increase (120.3% Y/Y). We had expected high demand for the iPhone6/6+ but we believed manufacturing limits would keep volume in FQ1 near our 64.8m unit forecast… Our proprietary iPhone user model implies that ~400m existing iPhone users still have not upgraded to iPhone6/6+ based on Tim Cook’s indication that a “mid-teens” percentage of users have upgraded so far.” Overweight. Raising target to $140 from $112.
Keith Bachman, BMO: More left with the installed base. “The most interesting comment from the call was that only a fraction of the installed base had upgraded to new iPhones. If we assume that the last 10 quarters of iPhones sold through the September quarter equates to the iPhone installed base, this would suggest a 375 million user base. Management commented that only a small “teens %” had upgraded to the iPhone 6 family. If we apply 12%, this would suggest about 45 million of users had upgraded, whereas we believe that iPhone 6 sales since inception are closer to 75-80 million units. Hence, we if applied a 12% ratio to an assumed figure of 75 million iPhone 6 sales since inception, this would suggest a user base of closer to 625 million. We don’t think this is an academic exercise, since we think the size of the installed base is important to yield future growth of iPhones. Outperform. Raising target to $130 from $123.
Sherri Scribner, Deutsche Bank: Even Santa didn’t see those iPhone numbers coming. “While we admit iPhone sales were very impressive, we continue to believe that strong near-term growth is largely factored into AAPL’s current valuation. With limited catalysts ahead of the Apple Watch launch in April, we expect shares to remain range bound.” Hold. Raising target to $110 from $102.
Timothy Arcuri, Cowan: What To Do From Here. “It is hard to pay for a Dec beat in late Jan… While AAPL shipped ~4-5MM more units than we thought possible given supply, March units were guided as expected and no better than Street. At the end of the day, we do see potential for a longer 6/6+ tail than prior product cycles and a new 4” 6S (“6C”?) should “refresh” the low-end of the product line as well. From here, capital return is the next catalyst and we are optimistic about the Watch, but more so the 2.0 version this fall. Apple Pay is a great new piece of the narrative, but it will probably take another 12-24 mos for the use case to start impacting hardware sales.” Outperform. $115.
Andrew Uerkwitz, Oppenheimer. A juggernaut named Apple. “We believe competitors will be unable to stop iPhone momentum in the current and coming product cycle. We see Apple competing at a different level from competition (ecosystem vs. spec.) and believe its 2015 product/service portfolio will broaden the user experience gap and help share gains over Android.” Outperform. $130.
Katy Huberty, Morgan Stanley: A quarter for the record books. “iPhone units beat consensus and grew 46% Y/Y, which along with the strongest iPhone ASP increase in the product’s history and double-digit Mac unit growth helped deliver revenue to nearly $75B, up 30% Y/Y and 14 points better than our model. iPhone mix expanded gross margin 200bps despite the currency headwind. Net, EPS of $3.06 beat expectations by ~20%. [Free cash flow] of $30.5B, or $5.19/share, grew 47% Y/Y and topped Apple’s prior record by nearly $10B.” Overweight. Best Idea. $133.
Steve Milunovich, UBS. Stunning Results and Guidance Despite Currency; Applesphere Expanding with Android Switchers. “Seems like the whole world wants an iPhone. The 74.5mn unit iPhone figure deserves all the adjectives analysts can muster, especially given that (1) supply/demand balance was not achieved until Jan, and (2) 49% sell-thru growth bettered the sell-in increase of 46%. Mainland China was a star in doubling YoY, which had been foreshadowed by our Apple Monitor. The company would not divulge mix details but with our ASP estimate close and the gross margin of 39.9%, our guess that iPhone 6+ was 30% of total iPhone units likely was near the mark. About the only negatives were an 18% decline in iPads and flattish iTunes revenue. Buy. Raises target to $130 from $125.
Amit Daryanani, RBC: All you need to know. “We had to increase our cell widths and chart heights after AAPL’s blow-out Dec-qtr print. The highlights of the quarter were: 74.6M iPhones, $33.7B of CFO generated, China revenues at $16B (+157%) and iPhone 6/6+ penetration at ‘low-teens’ in current install base.” Outperform. Price target to $130 from $123.
Gene Munster, Piper Jaffray: An Alternative Perspective To The Product Cycle: Expanding Loyal Base. “Looking into the iPhone 6S cycle (fiscal year 2016), we are modeling for iPhone units to be down 2% y/y, which leads to increased investor focus on the tough comps. We believe what gets lost in that focus is the longer term importance of a 74.5m unit iPhone quarter. We expect over the next few months a second group of investors will emerge that believes in the power of the platform that Apple is building and creating an annuity (90% plus iPhone re-buy rates) with customers that upgrade multiple devices over many years. Looking longer-term into the iPhone 7, which is likely to be a bigger product cycle than the 6S, we could see a case for even higher numbers for Apple. Our opinion is that companies that build annuity businesses that sell more products to customers over time should perform well over the long-term.” Overweight. $135.
Walter Piecyk, BTIG: Yes Apple Can Top $74.5 billion. Raising Estimates and Target. “The strongest criticism you may hear today is that Apple created too difficult a comp for the December 2015 quarter based on an unsupported assumption that ‘everyone upgraded their phone in 2014.’ We believe that assumption is wrong… The bottom line is that Apple’s current stock price (even after rising more than 5% after the close) is substantiated by the growth potential of its existing products with a free look on the growth potential of new product categories.” Buy. Raising target to $150 from $128.
Sundeep Bajikar, Jefferies. Risk of Losing Cool. “We remain Hold-rated on AAPL as we are concerned Apple is at risk of losing its ‘cool’ factor this year to Samsung’s high-end phones featuring flexible displays, more advanced 14nm semiconductor components, and attractive designs. We continue to think Apple needs to raise its game in Cloud Services to mitigate iOS hardware risk.” Hold. $124.
Maynard Um, Wells Fargo. Outstanding Cycle Start — Can The Encore Outperform? “The key question, in our opinion, is what the quarters beyond March will look like – whether there has been demand pull-in into the March quarter given the initial broader carrier launch, whether ASPs can hold better into a typically tougher June, whether Apple Watch will see end market demand, whether the iPad unit and ASP softness can reverse, and what the next iPhone cycle might have in store (including whether Apple maintains its 16/64/128GB tiering, which could impact ASP). With tougher comps ahead and more of a reliance on upgrading the existing installed base versus concentrating carrier launches, we see greater uncertainty and expect slowing growth.” Market perform. Raising valuation range to $105-$115 from $100-$110.
Kulbinder Garcha, Credit Suisse. Stellar results. “Importantly, management highlighted that iPhone volume had only recently reached supply and demand balance, suggesting that channel inventories had remained below targeted levels. Additionally, having iPhone 6/6 Plus penetration in the mid-teens of the iPhone base is reassuring for the longevity of this cycle.” Outperform. $130.
Brian White, Cantor Fitzgerald: A Huge iPhone Quarter and It’s Now Time to Focus on Apple Watch. “Apple’s strong results give credence to the notion that the company’s decision to shift to larger-sized iPhones makes this iPhone cycle very different from those of the past. Up next is Apple Watch, and the company announced the new device will begin shipping during the month of April. Given this powerful iPhone cycle, a big 4G ramp in China and the upcoming launch of Apple Watch, we believe there is still plenty to look forward to at Apple during this transformational cycle. At the same time, we believe Apple’s valuation has room to expand from depressed levels.” Buy. Raising target to $160 from $143.
Jim Suva, Citi: 5 Key Reasons Apple Shares Can Trade Higher.
- Reason 1 – Device Acceleration
- Reason 2 – Consensus Estimates Should Go Higher; Attractive Valuation
- Reason 3 – Gross Margins Permanent Step Up Higher
- Reason 4 – Apple Pay Plus Passbook
- Reason 5 – Enterprise Opportunity
- BONUS Reason: Apple Watch
Adnaan Ahmad, Berenberg: As good as it gets. “As noted before, Apple is still an iPhone-only stock. The iPad had an opportunity to shine but as its replacement cycle has lengthened and as the category has been cannibalised by “two for ones”, Phablets and a slew of cheaper Android-based tablets, Bullish investor sare now hoping that the Watch can be the next “hit” category for the team from Cupertino. But we think the Watch is going to be a disappointment and will turn out to be little more than a novelty product.” Sell. $60.
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