Colin Gillis, BGC: Haiku: With the larger screen, the current iPhone cycle, may have marked the top. “While there is clear demand for larger screen iPhones, we may see the handset upgrade cycle lengthen if future features prove less compelling. Apple has no other product with the volume demand and margin structure to replace the revenue and profit from the iPhone. The dependence on the iPhone is a liability as technology trends remain fickle for even the strongest brand.” Hold. $115.
Kulbinder Garcha, Credit Suisse: Prolonged Product Cycle in Play. “Although our estimates are above consensus, our assumptions may be conservative. First, GMs of 40% at the corporate level could prove conservative as we do not take into account leverage from increased sales nor scope for expansion as cost curves on new products improve. Second, we assume no significant impact from new products or monetization of services, such as Apple Pay, Beats, HealthKit and HomeKit. Third, our Watch estimates of 9mn units in FY15 and 28mn in FY16 could prove conservative, while our ASPs of $550 could also be conservative.” Outperform. $145.
Ananda Baruah, Brean: AAPL On Cue Pulling All 3 Levers Of Our Buy Thesis. “Fundamentally speaking, we believe AAPL stands to deliver material EPS upside from 1) iPhone ships through ’17, 2) favorable GM from both iPhones and iPhone mix (more 6 Plus’ than realized), and 3) materially more Opex $ leverage through at least ’16 as AAPL realizes the benefits from the recent iPhone 6 and iWatch investment cycles.” Buy. Raising price target to $170 from $160.
Keith Bachman, BMO: Strong Cash Flow, Among Other Things. “Our primary concern heading into the earnings call was June quarter gross margin guidance. Apple management is guiding June quarter gross margins to decline by 180 bps q/q. However, we believe the absolute level of 39.0% at the midpoint is well within the range of investor expectations. Further, as we pointed out in our note dated April 23, Apple is beating gross margin guidance by an average of approximately 150 bps.” Outperform. Raising price target to $155 from $135.
William Powers, Baird: Riding the iPhone wave. “Yesterday after the close Apple reported strong FQ2 results, highlighted by iPhone and gross margin upside. In addition, FQ3 guidance topped expectations for the seasonally weakest quarter. With Watch ramping, a potential enhanced video product on the way and continuing strong iPhone demand, we have increased conviction in our 2015 and 2016 forecasts.” Outperform. Raising price target to $155 from $134.
Sundeep Bajikar, Jefferies: Strong beat, as expected. “Significant increases to cash return program were roughly in line with expectations, and plans to use debt to fund cash returns were consistent with our analysis of U.S. cash flow. While we believe Apple is executing well, we think investors could struggle to interpret iPhone and Watch gross margins near term.” Hold. $130.
Timothy Arcuri, Cowan: Time after time. “Another solid iPhone-driven beat and in-line outlook against a backdrop of lingering currency volatility suggests the 6/6+ cycle still has ample runway. A lack of Watch specifics reaffirms our relatively tepid outlook until v2.0, while capital return plan was solid but expected. We see stock entering a holding pattern with an upward bias; target unchanged at $135 w/very minimal estimate changes.” Outperform. $135.
Adnaan Ahmad, Berenberg: Over-earning, over-loved and over-and-out? “The debate rages on – how long is there to go until this iPhone super cycle runs out of steam? Because we do not feel the Watch is not going to make up the difference given the law of large numbers on both absolute revenues and absolute gross profit dollars. In fact, it was painful listening to bulls rebutting the Apple CEO’s comments that Watch gross margins are going to be lower than the corporate average, ie lower than 39%, when the street had been modelling 50%+.” Sell. Price target as of March: $85.
Abhey Lamba, Mizuho: Strong Results; Potential Headwinds to Emerge? “While we are impressed by the company’s performance in 2Q and its potential to keep expanding its reach in emerging markets, we remain on the sidelines due to potential headwinds. We think iPhone sales are likely to decelerate meaningfully over the next few quarters creating headwinds for the stock. Although Watch sales are likely to ramp, they are unlikely to offset the void left by slowing iPhone sales and they will likely be margin dilutive.” Neutral. Raising price target to $125 from $115.
T. Michael Walkley, Canaccord Genuity: Strong results and guidance. “Consistent with management commentary, we anticipate continued high-end smartphone market share gains for Apple due to surveys indicating a greater mix of Android smartphone consumers switching to the new iPhones than the iPhone 5 series launches. We believe these trends should grow Apple’s sticky iPhone installed base to half a billion users during 2015 and this large base bodes well for future strong iPhone replacement sales, earnings, and cash generation.” Buy. Raising price target to $155 from $150.
Andrew Uerkwitz, Oppenheimer: Taking China by storm. “Best question: Answering analyst questions regarding China, Tim Cook cited impressive growth across all fronts in China, retail, developer support, iPhone and iPad sales, and more. We believe Apple’s share gain will continue in China at Samsung’s expense, and stay unaffected by the aggressive pricing used by Chinese OEMs.” Outperform. $155.
Ben Schachter, Macquarie: iPhone & China Drive AAPL. “We remain uber-bullish on the App Store, digital content, and Apple Pay over the long term… We believe that China App Store sales generated ~$3.5b in sales in the past 12 months, and now account for ~30% of total App Store sales. At this rate, China App sales could surpass U.S. sales in the next 12-24 months.” Outperform. Raising price target to $155 from $145.
Avi Silver, CLSA: Crushing Android. “Tim Cook stated that 20% of the iPhone subscriber base upgraded to the 6/6+ from a low-teens percentage in the December quarter. We believe the denominator Apple is using for this percentage is based on the subscriber base at the 6/6+ launch, which we estimate at 360m users. Based on this, we believe that new iPhone users from Android switching and (to a lesser degree) new adopters accounted for about 45% of the smartphone sales in the quarter, or some 27m new iPhone users. This is much higher than our forecast of 18m new users.” Buy. Raising price target to $163 from $151.
Walter Piecyk, BTIG: Taking Apple Target to $160. “Our estimate revisions are based primarily on a 28 million unit increase in iPhones sold estimate in FY2016 to 246 million. The strong quarter, solid guidance and opportunity to upgrade an estimated 400 million active users of older iPhones to newer product could alleviate concerns about the difficult comparables in the upcoming December quarter.” Buy. Raising price target to $160 from $140.
Shelby Sayraf, FBN Securities: Impressive iPhone and Greater China Sales. “AAPL missed consensus, however, in both iPad and Mac sales, and the 29% Y/Y iPad revenue decline was concerning. iPad is being cannibalized by larger-screen iPhones as well as Macs, and this trend does not appear to be changing anytime soon. AAPL also disclosed that it expects its Apple Watch product to have lower GMs than its corporate average (which was 40.8%).” Outperform. Raising price target to $160 from $140.
Anil Doradia, William Blair. And the beat goes on. “From our point of view, there were three main conclusions from the earnings call: 1) the significant growth in China during the quarter (which accounted for nearly 30% of March-quarter sales), 2) the record performance of the margin rich services business, and 3) the company’s massive increase in its capital return program, particularly the allocation to additional share repurchases.” Outperform.
Toni Sacconaghi, Bernstein: Encouraged by New iPhone Users, Sobered by Watch GM Profile. “Apple’s Q2 results were dominated once again by the iPhone, which contributed over 100% of YoY revenue growth for the second straight quarter (Exhibit 5), and by China which contributed over 50% of YoY revenue growth, and now amounts to 29% of total company revenue (notably more than Europe). While we worry about Apple’s increasing dependence on one product and one geography, we encouragingly estimate that perhaps 35% to 40% of iPhone purchasers so far this cycle are first time iPhone users (either “switchers” or first time smartphone users). We suspect this number could be over 50% in China and emerging markets, which lends credence to the notion that Apple’s powerful ecosystem and China’s strong income growth are translating to continued widespread adoption.” Outperform. $142.
Walter Piecyk, BTIG: Taking Apple target to $160. “We increased our FY2015 EPS estimate by $0.65 to $9.00 and our FY2016 EPS estimate by $0.60 to $10.00 primarily on an increase in iPhone estimates. Our new estimates lifted our FY2015 EPS growth expectations to 40% from 30%, which further validates additional expansion of Apple’s valuation multiples. Concerns about unit growth in the December quarter might start to subside given the strength in the quarter, solid guidance and disclosure that 80% of the installed iPhone base (which we estimate at 500 million globally) still has not upgraded older iPhones.” Buy. Raising price target to $160 from $150.
Katy Huberty, Morgan Stanley: iPhone the Main Attraction with More to Come. “iPhone grew strong double-digits in most regions, led by China where total revenue increased 71% Y/Y and the company talked about penetration into the mid-market. iPhone also grew double-digits in the Americas and Europe, where revenue growth increased at least 20% at constant currency, roughly in-line with December quarter trends. The two regions that underperformed – Russia and Japan – did so for well understood reasons. Japan growth is expected to recover on easier compares starting in the June quarter.” Overweight. Raising price target to $166 from $160.
Daniel Ives, FBR: Apple Delivers Picasso-Like Quarter. “Coupled with a good June outlook, Apple announced a massive expansion (we believe better than Street expectations) to its capital return program, a solid “one-two punch” that Apple bulls were hoping for, in our view, as the white hot iPhone 6 product cycle continues to help boost the company’s coffers (along with a debt raise in F2Q) and should enable enhancing shareholder value strategies.” Outperform. $185.
Gene Munster, Piper Jaffray: Guide Suggests iPhone Share Gains Will Continue. “Overall, our thinking on the story is largely unchanged. We believe iPhone 6/6+ is well positioned to gain share (sold 61.2m vs. Street at 57m) in the back half of 2015 and will cause Street numbers to slightly increase and move shares of AAPL higher. We are less concerned about tough comps given investors who have been recently buying AAPL shares (stock up 22% YTD) have been aware of the comps. iPads are still weak, driven by cannibalization from the iPhone and Macbooks. The capital return program was $200B, ahead of our ~ $170B expectation. Overweight. Raising price target to $162 from $160
Amit Daryanani, RBC: Impressive Beat. “AAPL Mar-qtr results came in materially ahead of consensus and buyside expectations driven by robust iPhone demand (61M units) and gross-margin upside (40.8% vs. expectation of 39.5%). Overall revenues/EPS came in at $58B/2.233 vs. street at $56.1B and $2.16. AAPL announced a $200B capital allocation program that it intends to use by March-2017 (three year program). Apple increased their dividend by 11% to ~$2.10/annually.” Outperform. $142.
Daniel Ives, FBR: How about Them Apples? “We believe this 60 million+ iPhone number is a ‘home run’ and will be cheered by the Street as this remains the ‘bread and butter’ of Apple. To this point, we believe screen size and updated features (e.g., Apple Pay) are driving robust demand for the most recent iPhone, a tailwind that should lengthen the runway of this product cycle.” Outperform. $185.
Brian White, Cantor Fitzgerald: Another Big Quarter and Plenty to Look Forward To… “Given the strength of this iPhone cycle, expanded cash distribution, and entry into the first new product category in five years with Apple Watch, we believe Apple remains early in this transformational cycle.” Buy. $180.
Aaron Rakers, Stifel: What we think matters most. “1. iPhone shipments at 61.2M. 2. Solid GM% at 40.8% vs. 38.5-39.5% guide. 3. Momentum in greater China — revenue at $16.823B, or +71% yr/yr. 4. Company announces $200B capital return target by March 2017. 5. Free cash flow at $16.712B or $2.86/share. 6. Apple Watch – comments on initial orders and production ramp, as well as any thoughts (qualitative) on GM% will be in focus.” Buy. $150.
Abhey Lamba, Mizuho: F3Q15 guidance indicates significant deceleration in iPhone sales. Management guided F3Q15 revenues to be in the $46-48bn range while gross margin is expected to be between 38.5-39.5% (down 230bps to down 130bps sequentially). This compares with consensus of $46.9bn and 39.0%, respectively. The outlook likely includes about $2bn from Watch sales, which likely implies significant deceleration in iPhone unit sales. We wait for management’s commentary on assumptions behind the outlook. Neutral. $115.