Apple (AAPL) shares tumbled at the end of last week after the tech giant released its fourth-quarter earnings report. This was despite the fact that Apple beat out the Street’s predictions by 20% in the September quarter with revenue of $62.9 billion. The Street predicted $61.57 billion. EPS was $2.91, a 40 percent increase from $2.07, as reported in September of 2017. Wall Street expected only $2.78 per share.
So what caused investors to step back? Apple guides revenue for the holiday season of between $89 and $93 billion. With Wall Street expecting $92.91 billion, the middle-of-the-road guidance of $91 billion falls short. It perturbed investors and analysts alike.
However, Wedbush analyst Daniel Ives defended the stock, noting, “Our core bull thesis does not change on the story and to some extent is emboldened by the ~$800 ASP story and a robust services business poised to hit $50 billion+ in FY20. The Street continues to be laser focused on the demand trajectory for iPhones into 2019 with the trifecta of next generation iPhones on the horizon and the Street modeling iPhone shipments of ~220 million units, which could ultimately prove to be conservative in our opinion given the underlying demand drivers. Based on our analysis we believe 350 million iPhones are in the “window of opportunity” to upgrade over the next 12-18 months with Apple needing to capture a majority of these units as part of this upgrade cycle to make a clearly successful iPhone product cycle in 2019 and lay the groundwork for future services/software growth and steady iPhone demand over the coming years.”
What They Don’t Know Won’t Hurt Them
More concerning perhaps is that Apple announced in the same breath it will no longer be releasing its unit sales figures for iPhones, iPads and Macs. These items are the company’s bread and butter. Ives referred to the news as a “jaw dropper,” saying skeptics have good reason to be paying attention.
“Apple is at the critical juncture where higher ASPs are making up for slower unit sales, which remains the worry,” Ives said.
Overall, Ives remains Bullish on Apple stock, reiterating an Outperform rating for the stock with a $310 price target, which implies over 50% upside from current levels. (To watch Ives’ track record, click here)
While Wall Street may be caught off guard by changes in the Apple empire, TipRanks analytics finds the stock is still a Buy. Out of 34 analysts surveyed in the last three months, 22 are bullish, 11 are sidelined and 1 is bearish. The consensus price target is $238.26, which shows about a 15% upside from where the stock currently stands in the market. (See AAPL’s price targets and analyst ratings on TipRanks)