Brokers cheer Apple plans
Apple analysts are cautiously optimistic about the company expanding its services business, a move they see as offering long-term growth potential. However, the company’s big media event earlier this week was seen as lacking key details, and even bulls say it will take a few years for the products to have a material impact on revenue or earnings.
The company unveiled a video-streaming service and a credit card, among other initiatives, as part of a plan to build out its service offerings at a time when sales for its iPhone line have shown signs of weakness.
Apple derived 15% of its revenue from services in 2018, while more than 60% came from its iPhone. Many analysts cheered Apple’s plans.
Broker Canaccord Genuity said the announcements “support Apple’s ecosystem approach,” and the higher-margin services revenue growth will “continue outpacing total company growth.”
It affirmed its buy rating and lifted its price target to $230 from $185, which is one of the highest targets on Wall Street.
“Big picture, this strategy aligns with our thesis that services, not devices, hold the key to Apple revenue and profitability growth over the next five years,” said Morgan Stanley’s Katy Huberty.
However, while the breadth of the services that were launched was “impressive,” the lack of pricing detail makes it difficult to evaluate the financial impact.
She kept her estimates unchanged but lifted the Apple price target to $220 from $197 and affirmed its overweight rating.
At Citi, Jim Suva said the event represented “a boost to every angle of its services,” but it won’t be “a major catalyst for the shares as consumers are slow to change their behaviour”. He affirmed a buy rating and a $220 price target. Goldman Sachs’ Rod Hall said the event was “materially different” than expected, as it had anticipated the TV service to be available immediately, and for more pricing details to be announced. “Though all of these services are interesting from a platform churn point of view none seem likely on our calculations to materially impact EPS in the short term,” he said.
As a result, “we expect the focus to return to the slowing iPhone business”, he warned.
