Is Apple Inc.’s Worst Nightmare Over? Daniel Ives Says FQ1 Performance Was Up to Code

Though Wall Street was bracing for disaster, GBH Insights' Daniel Ives believes Apple pulled through for its reassuring quarterly show.


Apple Inc. (NASDAQ:AAPL) had the Street in pandemonium ahead of yesterday evening’s first fiscal quarter- one which ranks as one of the tech titan’s “most feared prints” in a while, GBH Insights analyst Daniel Ives wagers.

Yet, it appears some fears have been relieved, as the analyst bets the first fiscal quarter results posted were “good enough”- including a revenue beat for the tech titan. Though the company came up short on iPhone unit shipment expectations, average selling prices (ASP) yielded an outclass- a nice offset. Even the second fiscal quarter did not meet bearish warnings, faring better than ominously predicted. It appears rumors of less-than-stellar iPhone X demand heading into the print did not hit Apple’s short-term guide like bears had been anticipating.

Now that the “band-aid” has been torn off, the analyst reiterates a Highly Attractive rating on AAPL stock with a price target of $205, which implies a close to 21% upside from current levels. (To watch Ives’ track record, click here)

For the first fiscal quarter, Apple reported $88.29 billion in total revenues and $3.85 in pro forma EPS, outclassing the Street’s forecast of $87.5 billion, but aligning with EPS expectations. For context, the big Apple had set a guide between $84 and $87 billion.

Ives notes, “strong iPhone demand was front and center in the quarter with the release of iPhone X and follow through demand from iPhone 8/8+. That said, iPhone shipments of 77.3 billion came in below the steadily climbing Street number of 80 million units with ASPs of $796 coming in well ahead of ASP expectations of $756, neutralizing the unit miss. Overall, services revenues of $8.47 billion came in below the Street’s $8.67 billion estimate as this continues to be a major growth driver for Cook & Co. over the coming years with our expectations that this revenue stream could be $50 billion by 2020 and we believe a slight miss this quarter is a blip on the radar. Importantly, Apple plans to reduce its net cash to “roughly zero” which means major buybacks and dividends are on the way for shareholders as the repatriation party is now in full gear with Cook leading the charge, a major positive for shares in our opinion.”

The big showstopper of the evening turned to the highly awaited second fiscal quarter guide, where Apple calls for $61 billion in revenue- a leap from the apprehensive $59 billion to $60 billion “whisper numbers that bears were clawing to,” Ives points out. Yet, Apple did underperform the Street’s $65.4 billion, although this is a guidance chop “already well telegraphed through supply chain data points out of Asia.” Gross margins hit 38% to 38.5%, which essentially mirrors consensus estimates- but Ives acknowledges a slight downturn priced into the stock “already.”

Looking ahead for full year fiscal 2018, the analyst projects Apple will no longer hit 255 million, scaling back to 235 to 240 million units. All the same, Ives has full confidence in this titan, anticipating the empire can steer its way through short-term headwind pressures and come forward with an even more robust tale of fundamentals closing out the new year.

Ives makes a bullish case here, boiling down his upbeat sentiment into the following growth drivers paving the way for Apple’s success: better than anticipated ASPs; a push-back of around 15 to 20 million iPhones from fiscal 2018 into fiscal 2019; advantages from repatriation as well as buyback prospects; various new device launches “on the horizon;” as well as the China gains factor (hinting at indications of “renewed growth” opportunities). To put it bluntly, the “window of opportunity” is clear and open from where this analyst is standing.

TipRanks highlights a mostly bullish camp roaring through Wall Street on this tech titan’s empire. Based on 30 analysts polled in the last 3 months, 19 rate a Buy on Apple stock while 11 maintain a Hold. Worthy of note, the 12-month average price target of $193.72 suggests a substantial upside potential of 15% from where the stock is currently trading.