Apple’s blowout earnings followed Big Tech peer Microsoft earlier in the week.
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Apple stock was rising Friday after the company’s blowout earnings — and there are reasons to believe the shares are only going higher.
The tech giant reported sales and earnings well ahead of Wall Street’s expectations late Thursday. The strong print was driven by sales of the iPhone as well as surprisingly good results from the company’s services business.
Revenue for the quarter ended Dec. 25, rose to $123.9 billion, up 11% from a year ago and ahead of analysts’ estimates of $119 billion. Earnings per share of $2.10 firmly beat expectations of $1.90. The company said it notched strong growth despite supply headwinds and that supply-chain constraints are now easing off.
Apple (ticker: AAPL) shares were up 2.5% in premarket trading Friday. That momentum could continue. Multiple Wall Street analysts have been lifting their price targets, and Citi bank sees five key reasons the stock could move higher.
Deutsche Bank lifted its price target on Apple shares to $210 from $200; Raymond James to $190 from $185; Canaccord Genuity to $200 from $185; Oppenheimer to $200 from $170; and the list goes on. Apple stock closed Friday at $159.22 so there’s lots of implied upside.
“Investors are too negative on Apple stock and view it as a Covid beneficiary that will see demand fall off as society eventually returns to more normalcy,” said Citi analysts Jim Suva and Asiya Merchant in a note Friday.
“Demand for Apple products and services is materially outpacing supply and when the supply chain normalizes then Apple’s sales and margins will only accelerate higher, in our view,” they added.
The team at Citi believes Apple stock will continue trading higher for five reasons. Crucially, revenue is set to continue growing year over year; as the analysts said, the tech giant isn’t just a beneficiary of the pandemic.
In addition, Citi sees the looming launch of an Apple augmented reality/virtual reality headset in the second half of this year as a tailwind that’s likely to accelerate app purchases. Services revenue — which was notably strong in the latest results — is also relatively isolated from broader regulatory risks the company faces, the analysts said.
Moreover, stock buybacks, dividends, and a “flight to quality” among investors is likely to come to the fore in 2022, Suva and Merchant said, and they expect to see an increase in Apple stock buybacks in April. Finally, Citi sees the elusive Apple car on the horizon, which should help the shares.
The team at the bank also noted that Apple’s results were a material positive for Jabil (JBL). The contract manufacturer was one of a number of Apple suppliers benefiting from the company’s earnings, with Jabil stock up 0.4% in the premarket.
Technology investors have had a tough time of late. The Nasdaq Composite index — a proxy for U.S. tech — is down more than 15% so far this year and firmly in correction territory. For its part, Apple stock has declined 12.5% since the beginning of 2022. Not a good start for the world’s most valuable public company.
Investors are hoping that strong results from Big Tech will help get Wall Street back to being bullish. Microsoft (MSFT) delivered earlier this week with Apple following suit.
Apple shares were well ahead of futures tracking the Nasdaq, which looked set to open 0.4% lower. Futures for the Dow and S&P 500
were headed for steeper declines.
While it’s too early to call a turnaround for the tech sector based on Apple alone, for now, at least, there’s good evidence that this tech stock will keep rising.
Write to Jack Denton at [email protected]
