Wall Street adjusts Apple expectations after Tim Cook 'rips the Band-Aid off'
Though Apple had a respectable December quarter, the company's outlook for the following three months calls for iPhone sales to decline for the first time ever. Analysts on Wall Street responded by trimming their price targets, though most still believe investors should buy in.
The following is a roundup of analysts tracked by AppleInsider and their reactions to Apple's results for its first quarter of fiscal 2016.
Looking forward to Apple's March quarter, CEO Tim Cook "ripped the Band-Aid off," analyst Daniel Ives wrote in a note to investors. Though he feels Apple's December quarter was better than some had feared, it was the guidance for the next quarter that took center stage.
"With the Street widely expecting a softer March guide, we would characterize a 50-million-plus iPhone bogey as 'better than feared,' although this was nothing to write home about," he said. "Clearly, Cook & Co. have a few tough quarters ahead until we get to the buildup around iPhone 7 later this year, which is what bulls (including ourselves) are focused on to turn this ship back into growth waters."
FBR has maintained its "outperform" rating for AAPL stock, but the firm trimmed its price target on Wednesday from $150 to $130.
Analyst Ben Schachter credited Apple for being "loud and clear" on upcoming macro weakness in the March quarter. He believes Apple's share price will bottom out soon, but warned that investors shouldn't "expect a quick rebound."
"in our view, aside from the macro, investors should read too much into the declining iPhone beyond the simple fact that there was massive pent-up demand for a larger screen," Schachter said. "AAPL is still taking share and we expect that to continue."
Like most others, he believes a so-called "iPhone 7" will return Apple's hot selling handset lineup to growth at the end of 2016 and heading into 2017.
Macquarie maintained an "outperform" rating for AAPL with a price target of $117.
With guidance between $50 billion and $53 billion for the March quarter, Apple's numbers came in 7 percent less than analyst Rod Hall had forecasted. He believes the lower than expected numbers are being driven by weaker than expected trends in the U.S. and Japan, in particular.
Another area of concern is deceleration in China. Though Apple still grew sales 14 percent year over year, it was not at the same torrid pace as before, when the company saw a 99 percent year over year increase in the prior quarter.
Bright spots noted by Hall included Apple's "very large services business," as well as a stronger-than-expected $690 average selling price of the iPhone.
J.P. Morgan has also maintained its "overweight" rating for AAPL, though the firm did slightly reduce its price target, from $145 to $141.
While Apple's guidance for the March quarter was not strong, analyst Timothy Arcuri noted the numbers were not as bad as some had feared they could be. To him, Apple's hardest comparison is now "on the tape."
Arcuri views AAPL stock as a "safe investment at this price," he said in a note issued on Wednesday. Still, he cautioned that Apple is in a "period of transition," awaiting either a new product cycle or entrance into an entirely new market.
Arcuri isn't as bullish on Apple as others, however. He maintained a "market perform" rating for the stock, with a price target of $125.
In its earnings call on Tuesday, Apple chose to emphasize its services businesses. But analyst Steven Milunovich noted that Apple continues to believe that it can grow iPhone units for years to come, based on feature differentiation and emerging market opportunities.
Milunovich also highlighted that Cook said iPhone units would not decrease as much in the March quarter as some investors are projecting. To him, that means Wall Street estimates are probably too high on the iPad and other product lines.
For the March quarter, Milunovich is forecasting sales of 52 million iPhones, which would be a 15 percent year over year decrease. He expects Apple will ship 215 million iPhones in fiscal 2016, which would be a 7 percent decline.
UBS has maintained a "buy" rating for AAPL, but cut its price target on the stock from $130 to $120.
Like some others, analyst Maynard Um came away with some hope from Apple's March quarter guidance, saying the numbers imply the company's performance will be better than some Wall Street bears have suggested.
Um expects iPhone units for the quarter to be in the low-to-mid 50 million range. He said some investor expectations had dipped as low as the mid-to-high 40 million range.
Still, revenue guide for the March quarter between $50 billion and $53 billion was below his expectations of $56.7 billion, and Wall Street consensus of $55.6 billion. Apple's guided gross margins are also between 39 and 39.5 percent, which is lower than Wall Street consensus of 40 percent.
Wells Fargo Securities continues to rate shares of AAPL to "outperform," with a "valuation range" between $120 and $130.
The following is a roundup of analysts tracked by AppleInsider and their reactions to Apple's results for its first quarter of fiscal 2016.
FBR & Co.
Looking forward to Apple's March quarter, CEO Tim Cook "ripped the Band-Aid off," analyst Daniel Ives wrote in a note to investors. Though he feels Apple's December quarter was better than some had feared, it was the guidance for the next quarter that took center stage.
Most analysts still rate Apple a buy, but a number of firms cut their price targets after this week's earnings call, including FBR, J.P. Morgan and UBS.
"With the Street widely expecting a softer March guide, we would characterize a 50-million-plus iPhone bogey as 'better than feared,' although this was nothing to write home about," he said. "Clearly, Cook & Co. have a few tough quarters ahead until we get to the buildup around iPhone 7 later this year, which is what bulls (including ourselves) are focused on to turn this ship back into growth waters."
FBR has maintained its "outperform" rating for AAPL stock, but the firm trimmed its price target on Wednesday from $150 to $130.
Macquarie Research
Analyst Ben Schachter credited Apple for being "loud and clear" on upcoming macro weakness in the March quarter. He believes Apple's share price will bottom out soon, but warned that investors shouldn't "expect a quick rebound."
"in our view, aside from the macro, investors should read too much into the declining iPhone beyond the simple fact that there was massive pent-up demand for a larger screen," Schachter said. "AAPL is still taking share and we expect that to continue."
Like most others, he believes a so-called "iPhone 7" will return Apple's hot selling handset lineup to growth at the end of 2016 and heading into 2017.
Macquarie maintained an "outperform" rating for AAPL with a price target of $117.
J.P. Morgan
With guidance between $50 billion and $53 billion for the March quarter, Apple's numbers came in 7 percent less than analyst Rod Hall had forecasted. He believes the lower than expected numbers are being driven by weaker than expected trends in the U.S. and Japan, in particular.
Another area of concern is deceleration in China. Though Apple still grew sales 14 percent year over year, it was not at the same torrid pace as before, when the company saw a 99 percent year over year increase in the prior quarter.
Bright spots noted by Hall included Apple's "very large services business," as well as a stronger-than-expected $690 average selling price of the iPhone.
J.P. Morgan has also maintained its "overweight" rating for AAPL, though the firm did slightly reduce its price target, from $145 to $141.
Cowen and Company
While Apple's guidance for the March quarter was not strong, analyst Timothy Arcuri noted the numbers were not as bad as some had feared they could be. To him, Apple's hardest comparison is now "on the tape."
Arcuri views AAPL stock as a "safe investment at this price," he said in a note issued on Wednesday. Still, he cautioned that Apple is in a "period of transition," awaiting either a new product cycle or entrance into an entirely new market.
Arcuri isn't as bullish on Apple as others, however. He maintained a "market perform" rating for the stock, with a price target of $125.
UBS
In its earnings call on Tuesday, Apple chose to emphasize its services businesses. But analyst Steven Milunovich noted that Apple continues to believe that it can grow iPhone units for years to come, based on feature differentiation and emerging market opportunities.
Milunovich also highlighted that Cook said iPhone units would not decrease as much in the March quarter as some investors are projecting. To him, that means Wall Street estimates are probably too high on the iPad and other product lines.
For the March quarter, Milunovich is forecasting sales of 52 million iPhones, which would be a 15 percent year over year decrease. He expects Apple will ship 215 million iPhones in fiscal 2016, which would be a 7 percent decline.
UBS has maintained a "buy" rating for AAPL, but cut its price target on the stock from $130 to $120.
Wells Fargo Securities
Like some others, analyst Maynard Um came away with some hope from Apple's March quarter guidance, saying the numbers imply the company's performance will be better than some Wall Street bears have suggested.
Um expects iPhone units for the quarter to be in the low-to-mid 50 million range. He said some investor expectations had dipped as low as the mid-to-high 40 million range.
Still, revenue guide for the March quarter between $50 billion and $53 billion was below his expectations of $56.7 billion, and Wall Street consensus of $55.6 billion. Apple's guided gross margins are also between 39 and 39.5 percent, which is lower than Wall Street consensus of 40 percent.
Wells Fargo Securities continues to rate shares of AAPL to "outperform," with a "valuation range" between $120 and $130.
Comments
If Apple is now going to switch the focus to services and monetizing the user base then they need someone better than Eddy Cue to drive that initiative. His organization is the weakest inside Apple IMO and all we'v3 gotten from him is the stupid Beats purchase and a me-zoo streaming music service that tries to do way to much and doesn't end up doing any of it great. Another thing, there's nothing sexy about "monetizing the user base". As a product company first and foremost, how does Apple keep up the excitement level transitioning to a "services" company?
I listened to the call, am a supporter of Tim, and think that Apple is doing great things in many aspects (R&D, Sales, Profit). And yet... any public company has an important reponsibility to protect its owners (i.e., shareholders), and that has fallen down recently. Without meaning to spark the vitriol that often comes on this site, I do think "protecting shareholder value" is a legitimate topic..
The problem with protecting value is that most companies do it wrong (cut R&D, decrease quality, and inferred by the analysts... focus on the short term). I'm hoping apple focuses on the long term, and to be honest, doesn't see propping shareholder value in a weak global economy as job 1 (getting 2% a year in dividends is a decent return in this economy).
http://archive.fortune.com/galleries/2008/fortune/0803/gallery.jobsqna.fortune/15.html
You sound foolish. It's hard enough to give good guidance for the next quarter, let alone for a year or next year. As a slave to guidance, I would expect you to be more sensitive about that. Should Apple have given guidance about this year's iphone installed base in 2006? You have any idea how stupid that sounds? Do you think Apple should have provided downward guidance for Q3 2016 LAST YEAR? Wall Street looks 3 months ahead because that's the next time they get meaningful information. If Cook gives guidance 3 years ahead they will be wildly off one direction or another. You think Wall Street likes that? You are a horrible armchair CEO.
If he is so up on what will happen with revenue for the rest of 2016 (or even 2017, ha!) then he should view the undervalued AAPL shares as a buying opportunity.
Never mind that Apple has funneled BILLIONS of dollars from people's pockets directly into Wall Street's grubby little hands. Never mind that Apple is poised to give even MORE money to Wall Street.
It is never enough for them. Apple just gives and gives to Wall Street, every quarter, year in and year out. But they want Apple to sell more, not less. Go figure.
Right now, and for a long time, it appears that Apple is sort of coasting. I can't put my finger on it. I know there's the iPad pro, but I almost walked past it at Costco. It looks like an oversize iPad. Nothing about it said WOW!!!!! Not even the screen.
It's just my gut feeling. This can be fixed by really pushing the industry hard. If we see anything from Apple that says 16G, I'm going to throw up right on my tv.
As far as Wall Street....can't just ignore them. Tim Cook is not the legendary visionary who founded Apple and sees into the future. He has to work that much harder. In fact, he's sort of a plain jane. I like him as CEO, but maybe he needs to ramp up his mojo. Talk up Apple, at least. Give Wall Street a sneak peak at something. I dunno. At least Steve Jobs addressed his return and the economic slump that was before him, "Apple is going to INNOVATE our way out of this!" and of course that was followed shortly by massive innovation and change.
This can turn around quickly. But the iPhone 7 cannot look anything like the iPhone 6. Wall street is superficial and will respond to shiny objects. Apple can engineer something really cool that screams NEW!!!!! while being just as innovative and beautiful as the 6s were. Last time, every component in the iPhone was overhauled. Except the outside. Now it's time to dazzle. Same with iOS and OS X. X needs a facelift. Someone take away Ive's white crayon. There is a LOT in the interface that needs polish and rethinking.
If Apple attacks from all fronts - hardware, software, design, engineering, cool, sexy, etc - they can turn around the perception that they've stopped innovating and possibly turn around Wall Street's notion that the king is dead and Apple will likely head into a gradual decline. Sales will be great (like Microsoft), but lack of true innovation will eventually sink it (Microsoft).
Apple... surprise all of us. Pull out the stops.
Offering Streaming services is nothing more than a MeToo. It will probably make money but it won't make Apple stand out from the crowd.
As for Banking etc, that would need a totally separate company in many parts of the world.
The US Banking industry is really backward. Unless Apple can come in and really shake it up (and let a lot of small regional banks go to the wall) it should be a non-starter. State laws make a truly Nationwide bank a real hard thing to setup. The simple act of moving some money from one state to another can end you up in Jail if you don't do it right. That is plain crazy and until the Banking system in the US is totally refomed APPLE should stay well out of it.
You have to have take a world view with Apple not a US centric one.