Apple’s better-than expected Q1 2020: What the analysts are saying

Everybody was impressed. Many gave their price targets another nudge.

Excerpts from the notes I’ve seen, new entries on top:

Toni Sacconaghi, Bernstein: A strong quarter… easy iPhone comps or further ammunition for multiple expansion? Amid a skyrocketing stock price, Apple’s Q1 needed to be good… and it was, beating handily on revenues and EPS. Most notably, iPhone revenues grew +8% YoY vs. consensus at -1%, driving more than the entirety of a $3B+ revenue beat and stronger GMs… On net, Apple’s stock could continue to grind up on upward revisions – our research has found that AAPL outperforms 65% to 80% of the time when consensus revenues increase. That said, the beat and upward revisions are largely being driven by iPhone, which arguably is enjoying cyclical strength, and Apple’s valuation is at record highs. We see risk-reward as fairly balanced. Market Perform. $300. 

Katy Huberty, Morgan Stanley: iPhone Beat = Return of Three Growth Pillars. Apple’s March 2020 gross profit guide is 5.5% above consensus, the biggest delta since the March 2011 quarter, and the 4th quarter in a row of better gross profit guidance. Our view is that iPhone replacement cycles have peaked near 4 years which combined with new features like longer battery life and better cameras, and more aggressive financing and trade-in offers, are stimulating demand. We believe strong demand will continue as Apple expands price points with a lower priced iPhone launching in March and 5G iPhones launching in September. At the same time, Services and Wearables continue to grow double-digits, returning the company to three pillars of growth. Overweight. $368.

Rod Hall, Goldman Sachs: Beat and raise on iPhone strength though Services missed our forecast. We move our forward estimates up as iPhone demand continues to surprise on the upside. However, we continue to believe consensus forecasts assume an optimistic scenario for the end of this year. Services missed our forecast and decelerated both Q/Q and Y/Y though commentary on why this was the case was unclear on the call in our opinion. Wearables came in exceptionally strong as expected in spite of supply constraints for both the Apple Watch Series 3 and Airpods Pro. We believe this report is more than Apple needed to deliver to continue its recent momentum. Neutral. Raises price target to $300 from $192 (!).

Matthew Cabral, Credit Suisse: Return to iPhone Growth Drives a Sizable Beat. Apple’s very strong C4Q is clearly a positive, though with the stock up >30% over the past 90 days a fair amount of this was likely priced in. Investor attention is already shifting toward the highly-anticipated launch of a 5G iPhone in 2H20; key debates include the impact on the replacement cycle and Apple’s pricing strategy given an expected uptick in BOM costs. Neutral. Raises price target to $290 from $275.

Timothy Arcuri, UBS: Increase Estimates On iPhone Strength. Apple reported a strong quarter exceeding higher expectations with revenue $2.3B above the high-end of the guide and almost 4% above consensus driven by iPhone + continued strength in Wearables (now the size of a Fortune 150 company with a very long runway given low attach-rate. Buy. $355.

Michael Olson, Piper Sandler: Dec Qtr Upside Driven by iPhone & Wearables; 5G on Horizon. Looking at the remainder of FY20, Apple is in the midst of a perfect storm, with current iPhone performing above plan, non-iPhone (especially wearables) trending strongly and growing anticipation for 5G iPhones that will be coming late in the fiscal year. Overweight. Raises price target to $343 from $305.

Wamsi Mohan, BofA/Merrill Lynch: Strong EPS revisions were needed and they came. With strong positive estimate revisions following earnings we see the following points confirming continued strength (1) Revenue from iPhones in F1Q20 was strong and we estimate more than 70mn units sold, (2) Channel inventory was not a tailwind to iPhone revenues in the Dec quarter as iPhone channel inventory remains low to normal, (3) Wider revenue range for March qtr guide de-risks impact from coronavirus, (4) Demand for Wearables exceeds Supply, (4) Gross margins in Dec and Mar quarters remain strong despite strong revenue from Wearables (which is margin dilutive), (5) Commodity prices are a tailwind in the Mar quarter, (6) Buybacks were strong in F1Q ($20bn) and we expect a new buyback authorization to be announced during next earnings, (7) The iPhone installed base is growing and significant penetration of Services usage is still to be realized with Apple tracking to 600mn subscriptions vs prior 500mn exiting 2020, (8) TV+ is yet to have material impact to services, (9) China growth (product and services) transitorily hindered by HK protests and (10) Net cash went up despite $20bn share repurchase (vs $15bn expected) and $3.5bn in dividends. Buy. Raises target to $350 from $340.

Samik Chatterjee, J.P. Morgan: The Wow Quarter. Apple pleasantly surprised investors on multiple fronts, but most importantly materially exceeded investor expectations on iPhone revenues, which returned to growth in the quarter much ahead of investor expectations. Overweight. Raises target to $350 from $300. 

Aaron Rakers, Wells Fargo: Positive Results Driven By Strong iPhone 11 Cycle And Services. While Services rev. was slightly below consensus expectations, Apple’s subscriber base expansion is likely more notable – now expecting 600M+ paid subscriptions by the end of C2020 vs. prior expectations of 500M. Equal Weight. Raises target to $315 from $245. 

Amit Daryanani, Evercore: With Prints Like These, Who Needs A Supercycle? This was a more impressive print/guide vs. expectations. While we understand China-centric concerns – fundamentally – the stock continues to have an upside bias as AAPL benefits from the trifecta of iPhone volumes picking up, services growth driven by ARPU uplift, and sustained acceleration on wearables. Outperform. Raises target to $365 from $360.

Daniel Ives, Wedbush: Cook Comes Out Swinging and Blows Away Street Estimates. Last night Apple reported its FY1Q20 (December) results which were markedly ahead of Street estimates and will be viewed positively by the Street this morning as iPhone 11 strength continues to look strong both domestically as well as internationally with China a clear star of the show despite the noise. We would characterize these results and guidance as a “blow out” print that will put more high-octane fuel in the bull thesis looking ahead. Outperform. $400. 

Gene Munster, Loup Ventures: Apple Strengthens Its Case for a Higher Multiple. We see an emerging paradigm where investors acknowledge that the company has proven its combination of over 1.5B active devices (up 8% from last year) wrapped in software and Services can deliver reliable earnings well ahead of its peers. For example, this year Apple’s GAAP earnings will essentially equal the combined profit from Google, Microsoft, and Amazon. Despite this, investors value Apple’s market cap at $1.4T compared to the $3T market cap of the other three companies combined.

See also: Best and worst Apple analysts, Q1 2020

10 Comments

  1. Jacob Feenstra said:
    Cabral: “Apple’s very strong C4Q is clearly a positive, though with the stock up >30% over the past 90 days a fair amount of this was likely priced in.”

    How could that be priced in if people didn’t anticipate such a strong showing? People price in what’s anticipated. 5G cycle might to a degree be priced in because people know it’s coming but a strong beat is not priced in. It’s a surprise. With arguments like that you will always be a chaser, Cabral.

    3
    January 29, 2020
    • Alan Birnbaum said:
      Rakers jump from $245 to $315 also requires a special mention…. /s

      0
      January 29, 2020
  2. David Emery said:
    Munster has the best quote: “this year Apple’s GAAP earnings will essentially equal the combined profit from Google, Microsoft, and Amazon. Despite this, investors value Apple’s market cap at $1.4T compared to the $3T market cap of the other three companies combined.”

    9
    January 29, 2020
    • Aaron Belich said:
      Yep. Munster and Daryanani sound the smartest of them all.

      I’m starting to believe than Dan Ives is setting AAPL for a fail 1Q2021. He’s really been pushing the 5G supercycle crap for months. Tim’s comments reinforced that 5G will not be ready for 100-150 million iPhones in 3/4Q2020 given the haphazard rollout so far and future plans across the globe.

      Shame that others are already jumping on the -1% (16% vs 17% or whatever it was) drop in services despite Tim and Luca’s explanation and revision to their goals.

      2
      January 29, 2020
      • David Emery said:
        If their models had been much more accurate over the last several years, then I’d be much more interested in a situation where Apple failed to meet the prediction. But given the collective track record ranging from ‘under-estimating’ to ‘completely missing the boat’, a 1% difference is nothing I’ll lose sleep over.

        0
        January 29, 2020
      • Fred Stein said:
        Yes, 5G is overhyped near term.

        Over a much longer term, we have an upgrade of the 1.5 B installed base. And some of that IB will upgrade several times during that cycle. When and how 5G impacts wearables is way above my pay grade.

        2
        January 29, 2020
  3. Gregg Thurman said:
    Despite this, investors value Apple’s market cap at $1.4T compared to the $3T market cap of the other three companies combined.

    Interesting way to illustrate how underpriced AAPL is. With MSFT, GOOG and AMZN valued at a collective US$3 Billion, it’s easy for me to see Apple valued at US$4 Billion. I think this will happen by CY2025 on current revenue streams alone, through new revenue streams introduced in the interim and its a no brainer.

    0
    January 29, 2020
    • Alan Birnbaum said:
      Trillion ..
      The #’s boggle the mind.

      May all your straddles & strangles pay off. I’ll just stick to my 21 & 22 leaps.

      0
      January 29, 2020
    • David Emery said:
      Actually, I’d argue it’s the others who are radically OVERvalued. And that’s before you consider the risk to Google or Amazon from anti-trust or privacy legislation.

      1
      January 29, 2020
  4. Thomas Larkin said:
    I wonder if there’s a severance agreement, and what “hush” clauses it might have?

    0
    January 29, 2020

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