Apple Rises On Better Than Expected Results As Iphone Reliance Lessens

iPhone revenue accounted for 53.6% of Apple's second quarter revenue, down from 61.4% in the last quarter

Shares of Apple (AAPL) are on the rise on Wednesday after the company reported stronger than expected earnings per share and revenue for the second quarter. The tech giant noted that iPhone sales dropped 17% in the quarter compared to last year, though that decline was not as bad as feared. Apple also offered upbeat commentary on China and Wearables along with a big stock buyback. Following the results, several Wall Street analysts reiterated Buy-equivalent ratings on the name and raised their price target on the shares. Nonetheless, not all were impressed, with Wells Fargo analyst Aaron Rakers saying that he continues to have a "cautious view" on Apple's Services growth sustainability over the coming quarters.

RESULTS: On Tuesday after market close, Apple reported second quarter earnings per share of $2.46 and revenue of $58.01B, both better than the expected $2.36 and $57.37B, respectively. The company said it sees third quarter revenue between $52.5B-$54.5B, with consensus at $51.93B, and gross margin for the quarter of 37%-38%. Additionally, Apple's board boosted its quarterly dividend by 5% to 77c, and authorized an additional $75B for share repurchases. During the company's earnings conference call, CEO Tim Cook highlighted Apple's installed base of over 1.4B devices and the company's Wearables momentum. Commenting on China, Cook said performance improved relative to the December quarter and that he strongly believes in the long-term opportunity in the Asian country.

TARGETS UPPED: Following Apple's earnings release, Piper Jaffray analyst Michael Olson raised his price target on the shares to $230 from $201, saying March quarter results brought upside across nearly all metrics. Olson believes that as long as Services revenue continues to perform at or above expectations, investors will be held over until anticipation for 5G iPhones begins to build, which is likely to start happening in the second half of 2019. The analyst reiterated an Overweight rating on the stock. Also raising his price target on Apple's shares to $235 from $230 and reiterating an Overweight rating on the name, JPMorgan analyst Samik Chatterjee said he expects investor sentiment to further improve on the company's revenue upside from better price/volume balance as iPhone promotions take hold.

Meanwhile, Wedbush analyst Daniel Ives upped his price target for Apple to $235 from $225 to reflect his growing confidence in the company's ability to monetize its "unparalleled installed base" on both the iPhone and services front over the next 12-18 months. While China remains a “wild card” in terms of how quickly iPhone demand will ramp in this key region, Ives believes "the stage is now set for Cook to put his finishing touches" on what will be a defining comeback and chapter in his legacy and Apple's future heading into 2020 and beyond. He reiterated an Outperform rating on the shares. Keeping Buy-equivalent ratings on the stock, BTIG, Canaccord and Morgan Stanley also raised their price targets for Apple.

'CAUTIOUS VIEW': Not as bullish on Apple, Wells Fargo's Rakers reiterated a Market Perform rating on the shares as he continues to have a "cautious view" on the company's Services growth sustainability over the coming quarters. Nonetheless, the analyst raised his price target for Apple to $215 from $190 as he thinks the company's June quarter guidance and commentary support the view of indications of stabilizing/bottoming iPhone demand, coupled with continued "solid" double-digit growth in its Services business. While Apple highlighted the success of its iPhone trade-in program, in part driven by its higher incentives, the analyst believes anticipation of a 5G iPhone in 2020 could impact upgrades. His peers at Maxim, Jefferies and Loop Capital also upped their target on the stock while keeping Neutral-equivalent ratings on the name.

FULLY VALUED: In a research note of his own, KeyBanc analyst Andy Hargreaves said that he views Apple as fully valued at current share levels. iPhone declines appear to be troughing and Services revenue continues to grow solidly, he noted. However, the analyst believes Apple's overall growth rate remains constrained by a saturated high-end smartphone market and decelerating Services tied to iPhone. Hargreaves reiterated a Sector Weight rating on the shares. Voicing a similar opinion, Credit Suisse analyst Matthewn Cabral argued that while Apple's iPhone has likely bottomed, recovery will take time. Expecting a one-year jump in the iPhone net replacement cycle in 2019 and further extension ahead of 5G in the second half of 2020, the analyst noted that while he recognizes the potential in the shift to Services, he does not think it is enough to move estimates meaningfully higher over the near- to medium-term. The analyst reiterated a Neutral rating on the shares.

Commenting on Apple's quarterly results, Oppenheimer analyst Andrew Uerkwitz also noted that while sales in Americas and Japan were up year-over-year, Great China sales stayed weak, down 22% year-over-year. Apple's focus on amplifying new service offerings has shown "solid" results in developed markets, but China remains a "dead zone" for many of Apple's new first-party services, he contended. Uerkwitz believes an incomplete offering of Apple's first-party services in China will result in even greater revenue volatility in between product cycles in the region. The analyst reiterated a Perform rating on the shares.

PRICE ACTION: In morning trading, shares of Apple have gained over 6% to $212.89.