Apple 2.0

Covering the business that Steve Jobs built

Apple's Q2 blowout: What the analysts are saying

April 25, 2012: 8:19 AM ET

Unbridled enthusiasm (almost) across the board

FORTUNE -- With no apologies for having underestimated Apple's (AAPL) earnings in the walk-up to Tuesday's results (see here), the Street rejoiced in another record quarter.

Topeka's Brian White: #1 in Consumers' Hearts, Apple Fever Rocks On. "Last night, Apple's performance once again demonstrated how quickly Apple fever is spreading around the world and this trend continues to drive meaningful upside in the Company's financial results. We believe the negative vibes that have held back the stock over the past couple of weeks will now be replaced with the fear of missing the next leg up." Raises price target to $1,111.

Goldman Sachs' Bill Shope: Surprising upside likely to reignite the rally. "The sharp upside in iPhones and a favorable commodity cost environment also allowed gross margins to come in at a record 47.4%, versus our estimate of 43.5%. Operating margins of 39.3% also represented a new record for the company... Out of all the good news in the quarter, we believe Apple's margin upside has the most important long-term implications for the story. While these margins should come down in quarters where iPhone mix is less substantial, the results suggest that annual margins can sustainably be much higher than investors previously appreciated. This substantially increases long-term earnings and cash flow generation potential. Raising price target to $850.

Pacific Crest's Andy Hargreaves: iOS Growth Outlook Remains Solid. "Apple sold 35.1 million iPhones in FQ2 (March), which was above our estimate of 34.1 million and the consensus estimate of 30.5 million. This was offset by iPad unit sales of 11.8 million versus our estimate of 13.8 million and a lower iPad average selling price (ASP), which drove revenue to $39.19 billion versus our estimate of $41.09 billion. How- ever, higher-than-consensus iPhone unit sales drove FQ2 revenue above the consensus estimate of $36.7 billion." Price target: $630.

ISI's Brian Marshall: Let the Asymmetric Alpha Generation Resume. "2 Perfect Quarters in a Row? When AAPL beat its revenue guidance by ~25% and EPS guidance by ~50% last quarter, we called it the "perfect" quarter. AAPL managed to again deliver huge upside in the Mar-12 quarter." Raising price target to $750.

J.P. Morgan's Mark Moskowitz: Those Are Really Big Numbers; Customer Affinity for Apple Devices Intensifies. "Apple continues to defy the law of large numbers with ongoing momentum across all of its major product lines. After setting all-time revenue and EPS records in the seasonally strong Dec-Q, Apple followed that up with its second best quarter ever and records for a Mar-Q. The company's results are a testament to Apple's optimization of the end user experience, in our view." Price target: $715.

Canaacord Genuity's T. Michael Walkley: Strong Quarter. "Apple generated an astonishing $14B in cash from operations during the quarter and ended the March quarter with $110.2B in cash and cash equivalents, representing a remarkable $117 in cash per share. Based on the closing price of $560 per share, Apple is trading at roughly 8x our updated F2013 estimate after backing out the $117 in cash per share. With Apple returning cash to shareholders through its dividend and buyback programs starting later this year, we believe Apple remains a compelling investment." Raising price target to $775.

Morgan Stanley's Katy Huberty: Buy Ahead of Product Cycles/China Catalysts. "R&D expense increased 11% Q/Q, 7 pts above normal seasonal trends indicating increased investments in new products. The last periods that Apple posted R&D growth this much above normal seasonality was two years prior to iPad introduction and 18 months prior to iPhone introduction." Price target: $720.

Bernstein's Toni Sacconaghi: Amid Investor Anxiety, China iPhone Growth Carries the Day. "Despite strong Q2 results, we caution investors that revenue and EPS estimates for Q3 and Q4 may not increase, and note that relative to consensus, Apple's revenue guidance for FY Q3 was its 2nd most conservative in the last three years (see Exhibit 6); moreover, last time Apple gave guidance that was similarly conservative (for Q4 FY 11), it ultimately missed consensus revenues and EPS." Price target: $750.

Morningstar's Michael Holt: Surging iPhone Sales Propel Apple to Another Stellar Quarter. "The clear standout metric, however, was Apple's gross margin of 47.4%, up 600 basis points year over year and 270 basis points sequentially. The ability to expand the gross margin and deliver massive unit shipment growth signals that Apple is having no trouble moving premium-priced units." Fair value estimate: $670 per share.

Piper Jaffray's Gene Munster: March Quarter Beat Proof That International Growth Story Is Just Beginning. "We believe the core question that will drive AAPL shares over the next two years is iPhone's level of success in emerging pre-paid markets. Apple's March quarter results are particularly important as they are evidence that the company's growth story can be successful in these emerging markets. Given Apple's commentary around China growing 5x y/y, our confidence that Apple can win with an iPhone in emerging pre-paid markets is greater than ever." Price target: $910.

Citi's Richard Gardner: Yet Another iPhone Blow-Out. "While we continue to see potential for a merely in-line quarter at some point this year ahead of the iPhone 5 transition, valuation is not demanding and we would be aggressive buyers on any potential weakness." Raising price target to $720.

Jefferies' Peter Misek: High iPhone subsidies here to stay. "Our discussions with U.S. and int'l carriers indicate that carriers view Apple subsidies as a necessary evil. We believe Apple's technological and form factor lead will insulate it from any subsidy pressure for the foreseeable future." Price target: $800.

Argus' Jim Kelleher: Without a net. "For the first time in the past year heading into the Apple release, the usual buoyant investor anticipation was leavened with dread: if Apple flopped, its decline would crush not just the stock, but the technology sector and even the entire market. Apple, under Tim Cook, is showing that the company is as vigorous as ever, while becoming ever more global." Raising price target to $670.

Sterne Agee's Shaw Wu: Conservative Guidance. "For its outlook, AAPL reverted back to its vintage conservative style. For the June quarter, the company is looking for $34 billion in revenue and $8.68 in EPS vs. consensus at $37.4 billion and $9.93 in EPS. While we found this conservatism surprising in light of China Telecom recently launching in March as a new carrier, we believe AAPL is being prudent in setting realistic expectations. In addition, we believe it is smart to reflect a potential pause and inventory drawdown ahead of the next-generation iPhone 5 launch likely in the September-October timeframe." Raising price target to $780.

Deutsche Bank's Chris Whitmore: China and iPhone drives upside. "Although iPhone unit shipments were very robust in the March Q (35M vs. Street at ~31M), we note the 2.6M channel inventory unit build, compressed global launch schedule (now available in 100 countries), dearth of large immediate, new carrier additions and the forthcoming iPhone 5 transition (October) will likely dampen iPhone demand over the next couple of Qs." Raising price target to $650.

Barclays' Ben Reitzes: Overseas iPhone Sales Provide Relief. "We recommend "staying the course" into what we believe will be a major iPhone 5 launch this fall. While Apple's outlook and global research points toward decelerating iPhone sales through September, we believe we are well within the 6-month range when shares benefit in anticipation of major product cycles." Raising price target to $750.

BMO's Keith Bachman. Asia Rising. "Asia Pacific revenue increased 32% q/q, compared with a decline of at least 22% q/q for all other geographies and a decline of 15% q/q for total revenue. Consistent with our past comments, we believe growth was driven by China, due in part to the iPhone 4S launch at China Unicom in January and China Telecom in March. Greater China revenue increased about 75% q/q to $7.9 billion in the March quarter. In other words, we estimate Greater China accounts for 78% of total Asia Pacific revenue, compared with around 58% in the December quarter." Raising price target to $695.

Atlantic Equities' James Cordwell: China drives another strong quarter. "Revenue from Greater China increased 246% YoY to $7.9bn (20% company revenue) as iPhone shipments grew fivefold and Mac units rose 60% YoY. With the prospect of China Mobile being added as an iPhone carrier partner in FY13, we see the potential for revenue from the region to exceed $50bn next fiscal year, leaving the rest of the world to grow by just ~10% to meet our overall revenue estimate." Raising price target to $760.

Cowan's Matthew Hoffman: AAPL Posts Solid F2Q12 Beat. "After the record launch of the new iPad last month, iPhone returned to center stage, driving ~$2B of the F2Q12 revenue upside. iPhone unit shipments of 35.1MM topped our 32.0MM estimate by >;3MM, helping boost overall gross margins (which were also helped by lower component costs)."

Baird's William Power: What iPhone concerns? "Following recent concerns regarding subsidies, the company noted the iPhone generally has a lower churn profile, is more data efficient than the average smartphone, and can be a useful tool for carriers in encouraging non-smartphone users to upgrade." Raising price target to $740.

FBN's Shelby Setrafi. iPhone sales, growth in China impress. "AAPL had another blowout quarter, with revenue and EPS way above expectations. Although the beat was less when adjusted for changes in iPhone channel inventory, AAPL is still executing very well." Raising price target to $800.

CLSA's Avi Silver: Another big gross margin beat: will it continue? "Apple is enjoying unprecedented pricing power, a highly favorable component cost environment (NAND and DRAM in particular), and strong operating leverage from higher revenue. The lack of material change to its form factor has also contributed to strong iPhone gross margin, which we expect to continue to a large degree in the Jun-Q. However, we expect iPhone gross margin to fall in the Sep-Q with lower volume and heavier promotions and in the Dec-Q based on its new form factor and higher-end components." Raising price target to $770.

Auriga's Kevin Dede: More of the World's Phones Go Smart. "Although both Verizon and AT&T saw significant quarterly declines in iPhone sales in the March (2Q12) quarter, Apple's March report last night clearly signaled that international markets and distribution timing deserve greater consideration." Price target: $700.

RBC's Amit Daryanani. International Performance Picking Up Steam. "Apple reported significant upside to Mar-qtr estimates, driven by robust strength in international iPhone sales coupled with an exceptionally successful ramp of iPad 3. Gross margins of 47.4% were almost 500bps ahead of expectations, driven by better mix (more iPhones) coupled with commodity tailwinds." Raises price target to $700.

Janney's Bill Choi: Blowout Results from China. "iPad unit sales were 11.8mn, in line with our estimate, but supply was constrained and channel inventory was down by 300k units to 2mn. As we previewed, Mac results were weaker in the quarter and total 4.0mn units, below our 4.5mn estimate. GM were surprisingly strong at 47.5% and 450bps above our 43.0% due to a favorable product mix (iPhones 58% of sales), lower component costs (display, flash, DRAM), and one-time benefits accounting for approx. 135bps." Raising price target to $670.

Society Generale's Andy Perkins: China demand for iPhones drives excellent quarter. "We had become concerned that Apple could struggle to find high sales in markets traditionally dominated by low-end handsets. We believe that the results from China demonstrate that our concerns were misplaced, especially as we only saw sales from China Telecom and China Unicom for part of the quarter. Additionally, we calculate that the gross margin achieved by Apple on the iPhone is now approaching 60%, much higher than our previous forecasts." Raising price target to $750.

William Blair's Anil Doradla: Another Blowout iPhone Quarter Alleviates Investor Angst. "We believe the company will continue to maintain strong earnings momentum based on smartphone adoption, share gains in PCs, early-stage adoption of tablets, and margin expansion. At $604 after hours, shares trade at 12 times our fiscal 2013 EPS estimate of $51.76, 9.4 times excluding cash. In our opinion, these are relatively inexpensive valuation multiples, given Apple's strong growth opportunities. We maintain our Outperform rating."

Hudson Square's Daniel Ernst: China -- Maker and Buyer. "Guidance for 3Q was characteristically light citing pull forward of sales, and the usual expectation for margin compression." Price target: $700.

Needham's Charlie Wolf: In an oft-repeated refrain, Apple produces yet another strong quarter. "To an increasing extent, Apple's fortunes have become hostage to the iPhone in part because of the phone's superlative gross margin. At 35.0 million units (vs. our estimate of 27 million), iPhone sales increased 88% year-over." Price target: $620.

Evercore's Rob Cihra: Upside Continues. "We see Apple's still small share of huge markets leaving continued headroom for growth, including our CY12E estimate that Mac units grow +14%Y/Y (or 3-4X the PC market) but still account for just ~5.4% of overall PC shipments, iPhones grow +60%Y/Y to 149mil to surpass 25% share of the smartphone market but still account for just ~8% of the broader 1.8B cell-phone market, and iPads grow +66%Y/Y to 67mil units but are still just early in pioneering a mobile thin-client revolution. It's not just about the product cycles, it's about the platform." Price target: $750.

Wedbush's Scott Sutherland: Apple Shines. "While we are not modeling any contribution from Apple TV, we continue to expect an integrated TV to come out at a premium price point, with the key selling points being integration with the iCloud and a new user interface. We note that iCloud has 125 million subscribers signed up since the October launch and Apple has expanded its offering of movies and TV shows. This gives an Apple TV offering a very large immediately addressable market." Raising price target to $800.

JMP's Alex Gauna: Another Strong Beat on Overseas and iPhone Strength; Maintaining Market Perform. "The stock traded up over 6% in after- market response to the solid upside that included a 270 bps sequential improvement in gross margins to 47.4%; however, we continue to look for a better entry point into the name before recommending further accumulation given: a) there is likely to be a two-quarter gap between now and the iPhone 5 introduction, ahead of which sales could decelerate further as occurred with the iPhone 4S refresh, b) Android competitors such as HTC and Samsung are anticipated to best Apple time-to-market in terms of their next-gen 4G LTE device introductions that are on deck for May, and c) it is increasingly difficult to imagine that Apple is not operating at peak growth and margin levels, beyond which tech equity performance tends to struggle." No price target.

That should do it.

Join the Conversation
About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.