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Apple's blockbuster quarter eases doubts about growth

Wednesday, April 29, 2015 - 07:10
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Apple Inc's blowout second quarter, coming after record iPhone sales in the holiday shopping season, laid to rest doubts that the company could sustain its scorching pace of growth.

[BENGALURU] Apple Inc's blowout second quarter, coming after record iPhone sales in the holiday shopping season, laid to rest doubts that the company could sustain its scorching pace of growth.

Shares of the most valuable publicly traded US company - which have risen more than 60 per cent in the past year - hit a record high of US$134.54 in early trading on Tuesday.

The stock later slipped to trade 0.5 per cent down at midday.

But few analysts expressed any doubts about Apple's prospects on Tuesday after the company comfortably beat Wall Street's revenue and profit forecasts. "With a lot of good news baked into shares, we are seeing some investors take a pause," FBR Capital Markets analyst Daniel Ives told Reuters. "We fully believe shares have significant upside from here."

Some analysts and investors had worried that iPhone sales may have peaked in the first quarter, when sales hit 74.5 million. The company sold 61.2 million iPhones in the latest quarter, beating the average analyst estimate of 57.3 million, according to market research firm StreetAccount.

Apple shares are attractively valued at 14.6 times forward earnings, well below the S&P 500 average of 17.2, Citigroup analyst Jim Suva wrote in a client note. "We believe consensus does not give Apple the full benefit of its new iPhone 6 positive boost to sales and EPS," Mr Suva said.

At least 16 brokerages raised their price targets on the stock, to as much as US$195. That implies an almost 50 per cent jump in Apple's shares by the end of the year, giving the company a market value of more than US$1.1 trillion.

Thomson Reuters StarMine estimates show that the market-implied five-year EPS growth rate for Apple is 10.5 per cent. StarMine's own calculations, which give more weight to more accurate analysts, suggest growth of 13 per cent.

Analysts took note of Chief Executive Tim Cook's comment that only about a fifth of active iPhone users have upgraded to the company's latest models.

That, they said, suggested potential for a lot of growth.

Morgan Stanley analysts estimated there were about 425 million existing iPhone users, and speculated that more than half of them would upgrade before the end of the year.

Many analysts say there could be at least half a billion iPhones in use by the end of the year, in part because more users of Google Inc's Android-run smartphones are switching to iPhone 6 and 6 Plus.

REUTERS