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Apple's first-quarter earnings beat drove strongly positive reactions by both investors and Wall Street analyst. The company's stabilization in iPhone sales provided clarity after a rare revenue warning in January.
The company's shares spiked 5% in early Wednesday trading.
Revenues were driven by increased growth in the smaller services and wearables segments despite the slowdown in iPhone sales, which dropped 17% year-over-year to $31 billion. Quarterly revenue dropped 5% versus last year.
Even so, iPhone sales came in better than expected, and the company's guidance projected further improvements.
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China iPhone sales in particular showed signs of stabilization, though Credit Suisse analyst Matt Cabral noted that long-term challenges remain in the market given increased competition and market saturation.
Apple designated a further $75 billion to buybacks and hiked its quarterly dividend by 5% to $0.77 a share. Analysts up and down Wall Street welcomed the increased capital return.
Several analysts noted 5G represents a key opportunity to recharge the company's growth. The company is preparing for the technology's rollout as it just settled its long-running patent dispute with Qualcomm.
Here's what Wall Street analysts are saying about Apple's Q1 results:
Morgan Stanley: 'Better Guide Clears the Path for Services, 5G Catalysts'
Price target: $240
Rating: Overweight
Morgan Stanley analyst Katy Huberty raised her price target on stabilization of iPhone sales and improvement in smaller revenue streams, such as services and wearables and better-than-expected guidance for the June quarter.
"Apple reported a clean March quarter and bullish June quarter outlook which against a backdrop of negative investor sentiment sets up for shares to move higher," she wrote.
"What we learned tonight is that improved iPhone trends continued into April with improving consumer confidence and further China stimulus in the form of lower VAT tax rates."
Huberty added: "While iPhone is the biggest driver of better June quarter guidance, higher mix of Services and Wearables, which don't exhibit as much seasonality, also contribute to a stronger than normal June quarter outlook."
Credit Suisse: 'iPhone likely bottomed; recovery will take time'
Price target: $230
Rating: Buy
Credit Suisse analyst Matthew Cabral highlighted the normalizing iPhone sales as a key reason for investor's positive reception.
This is likely driven by warming trade relations between the US and China, which may have improved iPhone sales in the short term. However, long-term challenges still exist in the market.
Cabral also noted that Apple's services business remains a major opportunity for further growth as the company begins to monetize the revenue stream over its enormous installed base of iPhones.
"While 'less bad' is a significant improvement from the rough start to the year, we remain Neutral as we see a long road to recovery for iPhone," Cabral wrote.
"Greater China (-22% y/y) remains a key swing factor ahead, as near-term cyclical factors (i.e., macro and trade tensions) appear to be easing, but we're concerned underlying structural headwinds remain given market saturation and aggressive local competition."
He added: "Finally on Services, revenue ($11.5bn, +16% y/y) reached an all-time high as Apple continues to shift toward monetizing its massive 900mn/1.4bn iPhone/total device installed base; App Store in particular posted a record quarter despite the ongoing headwind from a regulatory-related slowdown in China gaming."
Oppenheimer: 'iPad Delivers a Surprise Return to Growth While iPhone Remains Muted'
Price target: NA
Rating: NA
Piper Jaffray analyst Andrew Uerkwitz focused on Apple's share buybacks and dividend increase. He also highlighted the surprising growth in iPad sales.
"Apple announced an additional $75B share repurchase program as well as a 5% increase in the quarterly dividend," he wrote. "Given Apple's cash balance, its free cash flow generation abilities, its goal to reach a net cash-neutral position, the buyback program and dividend increase seem almost too conservative."
Uerkwitz added: "iPad sales exceeded expectations by the most dollar value due to strong sales of the new iPad Pro. The active installed base of iPhone, Mac, and iPad reached an all-time-high."
Wells Fargo: 'Indications Of iPhone Bottoming; Forward Estimates Relatively Unchanged'
Price target: $215
Rating: Market Perform
Aaron Rakers of Wells Fargo differed from other analysts in his relatively low expectations for near-term revenue growth in the services division, but said the coming 5G capabilities represented a key area of growth for iPhone sales.
Apple recently entered a settlement for its long-running dispute with Qualcomm to speed its move into 5G technology.
"We continue to have a cautious view on Apple's Services growth sustainability over the coming quarters," Rakers wrote.
"While Apple highlighted the success of its iPhone trade-in program, in part driven by its higher incentives, we think anticipation of a 5G iPhone in 2020 could impact upgrades."
Piper Jaffray: 'March Quarter Upside on Nearly All Metrics, June Revenue Guide Above Estimates; Overweight & $230 Price Target'
Price target: $230
Rating: Overweight
Michael Olson of Piper Jaffray noted that a clear path on revenues, through stabilizing iPhone sales and Services growth, have eased short-term investor fears ahead of the company's massive 5G opportunity.
He also saw support for the stock through the increased shareholder returns of capital.
"Looking at the remainder of FY19, we expect limited excitement around this year's iPhone launches, however, we believe that as long as services revenue continues to perform at or above expectations, this will tide investors over until anticipation for 5G iPhones begins to build, which is likely to start happening in 2H CY19," Olson wrote.
"In addition to the company's strong fundamental performance, Apple will be returning more cash to shareholders in the form of an increased dividend and $75B additional buyback authorization."
BAML: 'Trade-ins, pricing drive iPhone upside; Back to revenue growth in June Quarter; Price Objective raised to $230'
Price target: $230
Rating: Buy
Analyst Wamsi Mohan listed a host of factors driving improved sentiment, including resilient gross margins, accelerating services revenue, and strong capital return. He focused in particular to improvements in iPhone's trade-in process, which has driven better sales for new products.
"Apple highlighted that the recent initiative increased trade-in activity across geographies, especially China," he said. "This includes simplifying the trade-in process, new financing programs, and making it easier to transfer stored data between devices."
Mohan added: "Our analysis shows Apple is offering trade-in values that are at a premium compared to 3rd parties for these models."
Rod Hall of Goldman Sachs felt weak operating margins still clouded the iPhone maker despite improvements in other areas.
"Though in line with our above consensus expectations we point out that guided Opex implies operating margins of ~21% that have not been seen since 2008 when the iPhone was just getting started," he wrote.
"We believe fundamentals get more challenging as the year progresses and that the stock remains toward the top of its valuation range vs. the S&P 500. We reiterate our Neutral rating."
