After Apple’s better-than-feared fiscal second-quarter earnings report, a J.P. Morgan analyst hiked the firm’s AAPL price target from $210 to $225 per share while maintaining an “overweight” rating.
Lee Samaha for The Motley Fool:
The upgrade follows a good set of results from the company that allayed fears over lagging iPhone sales, particularly in China. That might sound surprising in light of the fact that iPhone sales did decline 10.4% year over year in the quarter to $45.96 billion.
However, as management noted on the earnings call, last year’s fiscal second-quarter iPhone revenue was boosted by a “one-time impact” that added $5 billion to its sales, as it filled pent-up demand resulting from pandemic-related supply chain disruptions. Apple CEO Tim Cook said, “Our March quarter total company revenue this year would have grown,” excluding this impact.
The analyst also noted that the guidance for the fiscal third quarter demonstrates the strength of the iPhone franchise and sets the company up nicely for the rest of 2024. It’s hard to disagree. Management guided toward total revenue growth in the low single-digit range while expecting a 2.5% headwind from unfavorable foreign exchange movements – guidance implies as much as 5.5% organic growth.
In addition, after a 14% year-over-year increase in revenue from its high-margin services segment in the fiscal second quarter, management expects another quarter of double-digit growth. Sales gains in services continue to transform Apple’s margin profile, as gross profit margins there come in near 75%, compared to 36.6% for products. Services made up just over a quarter of Apple’s overall revenue, compared to 22% in the same quarter last year. Apple’s overall gross margins improved to 46.6% from 44.3%.
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MacDailyNews Take: Apple’s services business has now become too large for even Wall Street analysts to overlook.
Apple’s services business – the uber-sticky ecosystem – is the most overlooked segment of Apple’s insanely efficient profit-generating machine. Wall Street wants growth? Well, there it is, right in front of their faces. Hardware unit sales aren’t where the action is – for proof of that just look at Windows PCs or Android. – MacDailyNews, April 20, 2016
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[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]
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