Apple Tops Estimates Despite Services Slowdown, Analysts Remain Bullish By Investing.com

By Senad Karaahmetovic

Apple Inc (NASDAQ:) reported better-than-expected results for its fiscal fourth quarter. The Cupertino-based behemoth an EPS of $1.29 to beat the consensus of $1.26. Revenue increased 8.1% to $90.15 billion, again topping the consensus of $88.76 billion.

The iPhone revenue, by far the biggest revenue stream for Apple, increased almost 10% to $42.63 billion, in line with estimates. CEO Tim Cook said iPhone sales would have increased double-digits if it was not for FX headwinds.

Mac sales increased by 5% to fuel a strong beat and offset the iPad’s weakness. On a more negative note, Services grew just 5% to $19.19 billion, missing the $19.97 billion consensus.

Apple generated $15.47 billion in sales from the Greater China region, up 6.2% year-over-year and just below the consensus of $15.65 billion. Finally, the gross margin came in at 42.3%.

“The strength of our ecosystem, unmatched customer loyalty, and record sales spurred our active installed base of devices to a new all-time high,” CFO Luca Maestri said.

Apple didn’t provide formal guidance, instead offering the FQ1 “guidelines” on the earnings call. The company sees revenue slowing below the +8% recorded in the FQ4. Gross margins are seen at 43%, the midpoint of the range, which is slightly below the year-ago December 2021 gross margin of 43.8%.

Apple also guided to a 10pt y/y FX headwind in F1Q, while expecting Mac revenues to decline YoY. Services will continue growing, although at a modest pace.

KeyBanc analysts cut the price target to $177 from $185 per share to reflect lower estimates. Still, they recommended that KeyBanc’s clients continue “owning AAPL.”

“We continue to expect relatively healthy iPhone growth of 7% (lowered vs. 13% previously), though with guiding Windows OEM down high “30s,” we would not be surprised to see Mac decline mid-30s% y/y. Further, with TAC slowing, and a difficult macro environment for advertising, along with a slowdown in mobile gaming, we expect services to grow 3% (lowered from 8%),” the analysts said.

Citi analysts also cut the price target as they went to $175 from $185 per share.

“A deceleration in services growth to +5% Y/Y was a negative that should improve as the company implements pricing actions that take hold as pricing changes in services take time to implement relative to hardware pricing. Inside this report we list out 5 reasons Apple stock can trade higher. We see consensus estimates moving slightly, with sales higher and EPS lower,” they wrote in a client note.

The analysts highlighted 5 reasons why investors should own Apple stock.

1. Services growth will improve;
2. India offers “the material geographic expansion opportunity”;
3. Foldable iPhone;
4. Revenue is still growing;
5. Apple is a platform company, not a hardware stock.

Apple shares are up almost 1% in pre-open Friday trading.