Apple’s Future Has ‘Never Been Brighter,’ Despite China Tumult

WSJ Digits Jul 14, 2015

Despite a recent wobble in Apple Inc.AAPL +1.05%’s stock amid the plunge in China’s market, analysts are sticking by their bullish calls ahead of the tech giant’s earnings.

Tuesday FBR Capital Markets reiterated its “outperform” rating on shares, but upped its fiscal third-quarter, full-year 2015 and 2016 earnings and sales estimates based on its assumption of higher iPhone shipment growth.

“We view the last few months as a ‘speed bump’ for Apple’s stock/multiple, as ultimately we see more legs to the iPhone 6 product cycle than the Street is anticipating for the next few quarters with China (despite recent macro headwinds) as a major driver of top-line growth, coupled by new products (Watch, Apple Pay, streaming) starting to pave the way for future avenues of consumer penetration heading into FY16/FY17,” wrote Daniel Ives, an analyst at FBR. He thinks the next iPhone model will also provide momentum.

Apple reports fiscal third-quarter results July 21, and analysts surveyed by FactSet project earnings per share to come in at $1.79. That’s two cents above their previous estimate of $1.77, accounting for FBR’s upward revision Tuesday.

The company’s stock is up 14% this year as expansion in China has boosted its bottom line. But as the region’s stock market has taken a wild ride, falling 35% from June 12 through July 9, Apple’s stock too has slid. Shares of the tech behemoth are down 2.3% since mid-June, lagging the S&P 500 that is off by 0.5%.

Mr. Ives’ optimistic view comes with the caveat that weakness in China and some doubts regarding the success of the Apple Watch could be near-term overhangs for the stock. Still, he has a $185 price target on shares, 47% above where they trade Tuesday.

In a note to clients Monday, Cantor Fitzgerald kept its “buy” rating on the stock, saying it believes Apple’s future has “never been brighter.”

“Apple is still in the midst of a transformational, super cycle with the first new product category in five years with Apple Watch, a multi-year iPhone cycle given the larger form factor, momentum in China, potential new areas of innovation (e.g., streaming TV, growing interest in the car) and a rapidly expanding digital matrix (e.g., Apple Music, Apple Pay, CarPlay, etc.),” said Brian White, an analyst at Cantor.

Last week UBS analysts reiterated their bullish stance, brushing off volatility in China. They said if the turmoil is contained to China’s stock market, there should be “limited impact” on Apple shares.

Apple is a “very popular” stock among hedge funds, according to Goldman Sachs Group Inc. At the end of the first quarter, 191 hedge funds owned Apple shares, by the bank’s measure.

Wall Street analysts like the stock too. Of the 51 analysts FactSet follows who cover Apple, 71% have positive ratings on shares. The average price target among all 51 analysts is $147.28, 17% above Apple’s price Tuesday.