Apple Inc. may have just seen its worst sequential drop in iPhone revenue for any March quarter in the company’s history, but investors seem optimistic about where the smartphone giant is headed.
Shares of Apple AAPL, +5.93% were up 4.4% in Wednesday morning trading, putting the company a step closer to reclaiming a $1 trillion valuation. The stock would have to close above 5.7% to reach the milestone once again.
Analysts cheered the company’s fiscal second-quarter earnings commentary, as Apple sorts out its iPhone issues while seeing nice boosts from the rest of the business. The latest quarter showed “upside on nearly all metrics,” wrote Piper Jaffray’s Michael Olson, who rates the stock at overweight with a $230 target.
A key question on Apple’s earnings call concerned the company’s forecast, which called for just a roughly 8% sequential decline in revenue in the fiscal third quarter. That would be the most “benign” June-quarter drop in Apple’s history, according to Bernstein’s Toni Sacconaghi. Such an outlook came as a surprise to Sacconaghi, but he assumes that the company is feeling upbeat about the impact of new trade-in offers.
“Apple’s confidence appears based on the fact that iPhone revenues picked up notably in March in response to price cuts in perhaps a quarter of geographies such as China (likely suggesting that Apple would have missed consensus expectations in the absence of such actions) and in response to attractive trade in offers at its stores and website,” he wrote in a research note. “It appears that Apple expects the impact of attractive trade-in offers to be even more meaningful in Q3 than Q2.”
Sacconaghi rates the stock at market perform with a $190 target price.
J.P. Morgan’s Samik Chatterjee said that some investors he spoke to ahead of Apple’s earnings report seemed hesitant about the stock, but he thinks the latest commentary could alleviate concerns.
“With F3Q guidance indicating that Apple is balancing price and volume to maximize the revenue opportunity and is likely to get back to year-over-year revenue growth following only two quarters of year-over-year declines, we expect significant improvement in investor sentiment,” he wrote.
Not all were satisfied with the company’s remarks on trade-ins, however, with Raymond James analyst Chris Caso expressing concern about the impact of this dynamic on Apple’s margins.
“Most interesting to us was implied iPhone gross margins, which appear to be down ~500 basis since December and down ~700 basis points since 2017, which could have a more material impact in 2H as iPhone ramps as a percent of revenue,” he wrote. Caso is worried about the coming iPhone cycle, “as we believe a lack of compelling products will negatively affect mix, pressuring [average selling price] and margins.”
He rates the stock at market perform.
Apple shares have gained 33% so far this year, as the Dow Jones Industrial Average DJIA, +0.13% has increased 14%.