Apple Earnings: The Analysts Have Their Say

Posted by: Arik Hesseldahl on April 23, 2009

Share price targets maintained by analysts are heading upward again after last nights blow-out earnings call with Apple. Here’s a round-up of comments culled the various research notes that landed in my in-box today.

Charlie Wolf, Needham and Co.: “Catch A Tiger By The Tail”

In an economy that shows only tentative signs of recovery, Apple reported what must be viewed as an outstanding quarter. … The bigger news not captured in second quarter results is the phenomenal success of the iPhone/iPod touch App Store. Application downloads should top one billion on April 23rd, just 9+ months after the store was opened. In our view, the iPhone is building a software competitive advantage in the smartphone market that competing platforms will find difficult, if not impossible to challenge. This advantage, in turn, should translate into market share gains for the iPhone down the road….. We continue with fiscal 2009 and 2010 earnings per share estimates of $5.50 and $6.40, respectively.

Wolf’s target price: $200

Samuel Wilson, JMP Securities: “Looking Forward To Sunshine”

“Apple reported better-than-expected fiscal second quarter EPS on revenue and margin upside…. Year-over-year revenue growth was a slight acceleration from +6% year-on-year to +9% year-on-year sequentially. We believe there were as many pluses as minuses in the March results. Our sense is the company beat lowered expectations, but it’s not a return to strong growth…. Looking forward, Apple’s management forecast for the June quarter was lower than current consensus. We believe this is based on iPhone sales deferrals, upcoming product mix, and the overall rough environment…. Pluses and minuses balance, do not believe the right strategy is to chase the stock. Growth is potentially starting to stabilize, but valuation is not particularly compelling. Additionally, expectations have increased noticeably in the last two months. While we believe Apple is an exceptional company, we prefer to wait for a more attractive entry point.”

Andy Hargreaves, Pacific Crest Securities: “Apple Suffers Massive Earnings Beat in Steve Jobs’ Absence”

Apple sold 11 million iPods in the quarter, exceeding our estimate by 2 million. This, along with better-than-expected desktop sales and a strong gross margin drove EPS of $1.33 versus our estimate of $1.21….We believe the App Store is establishing a very significant competitive advantage that Apple will be able to exploit in current and future mobile hardware products…. We are raising our unit estimates for all of Apple’s key products in F2009, with significant increases to our iPod and desktop estimates. This drives our F2009 EPS estimate to $5.94 from $5.34 and drives our F2010 EPS estimate to $7.08 from $5.95.

Hargreaves’ target price: $150

Shaw Wu, Kaufman Bros. Equity Research

Europe (26% of revenue) and Japan (6%) were both up 18% year-on-year compared to 8% year-on-year growth in the Americas (43%). We believe international growth is an underappreciated part of the Apple story. … As expected, its June quarter guidance was vintage conservative, due in part to uncertainty around iPhone contribution from the timing of the launch of new iPhone 3.0 software and we think potential pause ahead of new models. … We continue to believe AAPL is one of the better fundamental names to own in this tough macroeconomic environment given its strong defensible position and relatively low market share in its end markets.

Wu’s target price: $152

Yair Reiner, Oppenheimer and Co.: “Consumers Smelled Value Where Investors Smelled Fear”

Apple continues to defy the common misconception that, as a premium brand, it’s destined to underperform in a time of economic duress. In F2Q09 Macs gained share in the PC market (netbooks notwithstanding); iPod ASPs increased as consumers traded up to Touch; and iPhone handily exceeded expectations amid strong sell-through. Apple products aren’t cheap, but the resiliency in their demand suggests they’re creating a lot of value-not by cutting prices (like most peers) but primarily by increasing utility. The strategy is working now and should work doubly well when the world emerges from its current morass.”

Reiner’s price target: $140

Gene Munster: Piper-Jaffray: “Beating Macro Trends: iPhones, Macs, iPods & Margins Come Through”

“The key takeaway is that the challenging consumer spending environment is not impacting Apple to the degree that the Street expected it to….Our confidence in the iPhone platform is unchanged. We see the strong outperformance of iPhone as an indicator that consumers are still attracted by the value proposition of the iPhone… We continue to expect a family of iPhones this summer, as early as June. Moreover, Apple indicated that the iPhone would launch in China in the next 12 months, but we believe it could be as soon as the end of the summer….Apple continues to expect the return of Steve Jobs by the end of June. Until then, it appears that day-to-day operations at Apple are running smoothly. We believe Jobs may return to Apple with a reduced role, possibly as Chairman, with COO Tim Cook assuming the CEO position. Regardless, we think the transition of leadership during and after Jobs’ leave of absence will not negatively impact Apple’s business.”

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