Apple's 'bad news' wasn't as bad as expected. Here's what Wall Street is saying about the iPhone giant's earnings.

Rebecca UngarinoJan 30, 2019, 20:49 IST

Reuters

Wall Street analysts were reacting to Apple's quarterly earnings results on Wednesday.
On Tuesday, fiscal first-quarter earnings and revenue both came in barely above analysts' estimates, and essentially in line with Apple's preannouncement earlier this month.
Some said the iPhone's giant's guidance wasn't as grim as expected, but a host of challenges - namely around slowing economic growth in China and slowing iPhone sales - would persist.
Shares were trading up 5% following the results.
Watch Apple trade live.

Wall Street analysts mostly agreed on one thing following Apple's quarterly earnings report: the outlook wasn't as dire as what the consensus expected, but plenty of challenges lie ahead.

Apple reported fiscal first-quarter earnings Tuesday afternoon that were in line with what the company announced earlier this month, and barely above what most analysts were expecting. As for Apple's second-quarter guidance, its sales and earnings forecasts came in toward the low end of what analysts anticipated. Still, shares surged 5% after the results were released Tuesday evening, and held those gains early Wednesday.

There were little to no surprises in the earnings results, analysts said, due to the surprise announcement already made in early January. For one analyst, KeyBanc Capital Markets' Andy Hargreaves said the company's outlook wasn't dismal, but still wasn't "particularly good." HSBC called the first quarter "uneventful," but noted second-quarter guidance fell below what the majority was expecting.

Hargreaves noted that Apple's services growth - seen as a burgeoning opportunity for the company as hardware sales slow - was "solid," but easing as well. Hargreaves left both his price target and investment recommendation on the stock unchanged, as did many of his peers in the analyst community.

Many pointed specifically to China and iPhone sales growth as specific headwinds for the company. Oppenheimer analyst Andrew Uerkwitz told clients that in the long run he saw the least upside from service sales in Greater China due in part to robust competition from Android phones and the impact of government regulations on services.

"We believe there is a lengthening of the replacement cycle and diminishing utility of high end phones across markets, to which Apple is not immune," he said. "As long as iPhone sales do not grow, we believe the stock will struggle to work. Longer term, we see tremendous value in the Apple ecosystem and its ability to monetize its user base."

Here's a snapshot of what other analysts are saying about Apple's results:

See Apple's 'bad news' wasn't as bad as expected. Here's what Wall Street is saying about the iPhone giant's earnings. >>

JPMorgan

Price target: $228

Rating: Overweight

"This quarter was clearly about investors putting bookends around downside risks to Apple's iPhone unit volume outlook and the F2Q19 revenue guidance of $55-$59 bn managed to reassure investors that volume risks are largely priced in the shares at current valuation," analyst Samik Chatterjee said on Wednesday.

"Outside of the focus on iPhone volumes, there were other silver linings in the report relative to new disclosures on the Services segment, including gross margin of 62.8% in F1Q19, which we believe was at the high-end of investor estimates going into the announcement."

Macquarie

Price target: $149

Rating: Neutral

"AAPL was more or less in line with our expectations overall," Benjamin Schachter told clients Wednesday.

"Guidance wasn't as bad as we had feared and mgmt. sounded upbeat and confident. They also highlighted that there will be 'exciting announcements later this year' which we take to confirm a video subscription is coming soon-ish. We remain focused on Services and that did (and we expect will continue to) slow."

BMO Capital Markets

Price target: $153

Rating: Market perform

"There were no major surprises with December-quarter results given the negative preannouncement earlier this month," analyst Tim Long said. "Management did not provide details surrounding units/ASPs across products, but did provide gross margin for products and services."

He added: "Services margin was a focus, and came in largely in line with consensus speculation. The company also provided guidance for the March quarter that was below our and Street expectations across the board. We are lowering our estimates, and remain Market Perform as we see no catalyst on the horizon."

Piper Jaffray

Price target: $187

Rating: Overweight

"Many investors feared a more significant guide down was coming for March quarter revenue and with the 'bad news,' which turned out not as bad as expected, out of the way, some that had been sidelined will likely re-visit the stock," senior research analyst Michael Olson wrote.

Citi

Price target: $170

Rating: Buy

"With the change by Apple to focus on services in its reporting segments and no longer providing unit data we answer, Is Apple a services company? No," analyst Jim Suva said. "Apple is an IT Hardware product company with great services which are attached to Apple products. Without Apple products its services struggle to exist."

He added: "Yes the focus by Apple on services may help its valuation over time, but we note even if Apple services were to grow over 50% the next few years it would still represent less than 25% of the company’s total sales. So the near-term debate is the investor set up and expectations."

Wells Fargo

Price target: $160