Apple Shares Drop On Weak iPhone Sales; Street Stays Bullish

Apple (AAPL) is dropping 6% in Friday’s trading after reporting a record September quarter, with investors disappointed by weak iPhone sales.

Specifically, Q4 GAAP EPS of $0.73 beat Street estimates by $0.03. Meanwhile revenue of $64.69B was up 1% year-over-year, and topped consensus expectations by $1.36B- driven mainly by stronger than expected iPhone and Services performances. Mac sales and aggregate installed base of active devices also hit an all-time high.

The break down was as follows: iPhone at $26.44B (lower than the 27.73B consensus due to this year’s delayed iPhone announcement); Mac at $9.03B (easily beating the $7.93B consensus); and iPad at $6.79B (again an easy beat vs the $6.14B consensus).

Apple also reported revenue for its Wearables, Home and Accessories unit of $7.8B vs. $7.23 consensus with Services revenue of $14.5B vs the $14.12B consensus.

“Apple capped off a fiscal year defined by innovation in the face of adversity with a September quarter record, led by all-time records for Mac and Services,” cheered Tim Cook, Apple’s CEO.

“Despite the ongoing impacts of COVID-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive” he added.

Looking forward management did not provide firm guidance citing COVID-19 uncertainties, but did give soft guidance for F1Q21.

That included 1) iPhone revenue expected to grow year-over-year despite delayed product announcement; 2) all other products in aggregate and Services expected to grow double digits; and 3) gross margin similar to previous quarters with OpEx between $10.7–10.8B.

Following the report, Oppenheimer analyst Andrew Uerkwitz reiterated his AAPL buy rating and $125 price target. He argues that positive initial iPhone sales data points coupled with the upcoming Holiday season position the company to grow its top line to $102.0B (+58% Q/Q) in F1Q21E while maintaining its current gross margin of 38%.

“Despite uncertainties surrounding the current environment, we believe that Apple is well-positioned to leverage its carrier relationships to ensure success of its 5G-enabled iPhones, recover from this quarter’s China setback, and gain momentum for Services revenue from Q4 Apple One and Apple Fitness+ launches” the analyst explained. (See AAPL stock analysis on TipRanks)

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 26 Buys, 8 Holds and only 1 Sell. With shares up 49% year-to-date, the average analyst price target of $127 implies upside potential of 16% to current levels.