A 'drop the mic' quarter: 3 Apple stock analysts explain why they're boosting price targets after a monster 2nd-quarter earnings report

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  • Apple turned in earnings and revenue for its financial second quarter that surged past Wall Street's expectations
  • Goldman Sachs upgraded Apple shares to neutral from sell following the earnings report.
  • JP Morgan and Wedbush increased their price targets for the tech giant.
  • See more stories on Insider's business page.

Apple's second-quarter financial report outstripped expectations set by Wall Street, bolstered by a 66% climb in iPhone sales and the reopening of its 220 stores in the US that had been shut by the pandemic.

Quarterly revenue of $89.6 billion was higher than $77.3 billion expected in a consensus estimate from Yahoo Finance. Earnings of $1.40 per share trounced the average estimate of $0.56 per share.

"Our original view that the iPhone cycle would disappoint in the midst of COVID was clearly wrong. Not only has Apple done better than we expected on iPhone during the cycle but Mac and iPad have also materially outperformed our forecasts," said Goldman Sachs equity analyst Rod Hall in a Thursday note in which he upgraded Apple to a neutral rating from sell. Apple's results prompted other analysts to raise their price targets on the tech industry behemoth.

Apple shares advanced during Thursday's session.

Here's what three top Wall Street analysts had to say about Apple's report.

Wedbush: "Cook & Co. Deliver a 'Drop the Mic' quarter

iPhone revenue beat Wedbush's expectations by 17% "in a jaw-dropping performance as the iPhone 12 supercycle is playing out before our (and the Street's) eyes," wrote analyst Dan Ives.

The iPhone 12 will hand the baton to iPhone 13 in September as part of a multi-year 5G upgrade cycle, he said, adding that China remains the fuel in the iPhone 12 cycle, with no signs of slowing down based on its recent Asian supply chain checks and supported by Apple's high-level outlook for the June quarter.

"Of course chip shortages will have a headwind for the next few quarters (roughly $3 billion to $4 billion headwind in the June quarter) for Apple like every technology/automotive player, but the reality is this product cycle is enabling Cook & Co. to achieve its next level of growth and monetization looking ahead," wrote Ives.

Wedbush raised its price target $185 from $175, with a bull target of $225. It kept its outperform rating on the stock and said Apple remains on its "Best Ideas List" for 2021.

Goldman Sachs: Apple "materially beats in all segments"

In highlighting some of Apple's figures, Goldman said iPhone revenue of $48 billion was 30% higher than its estimate, and continued work-from-home demand pushed Mac revenue up by 70% year over year to $9 billion, which was 2% higher than its forecast. It noted that Apple mentioned that both Macs and iPads remained supply constrained because of strong demand.

Analyst Rod Hall said since being added to Goldman's Americas Sell List in mid-April 2020, Apple's stock has surged 86% compared with the S&P 500's gain of 49%.

"Our forecasts move up to match the beat and June revenue indications and are now closer to consensus. While we continue to believe current levels of demand are likely to be tough to sustain, we equally acknowledge that high-end consumers have proven far more resilient through the pandemic than we expected," wrote Hall.

Goldman raised its 12-month price target to $130 from $83.

JP Morgan: "5G has more legs than one quarter"

Analyst Samik Chatterjee said the 5G iPhone cycle is not only spurring strong consumer upgrades and switches, it's also positioning Apple for a higher share of the overall smartphone market. As well, Apple is likely to see further demand from customers and enterprise channels for Macs and iPads "much longer than investors presume at this time," stemming from the changing landscape of where and how people work.

"We raise our revenue and earnings estimates for FY21 on the strength, but more importantly raise our out-year iPhone, Mac, iPad and Services revenue expectations as well, as we expect Apple to continue to build on the strength with stronger replacement cycle-led demand and greater Services opportunity on a larger installed base," said Chatterjee.

The investment bank raised its price target to $165 from $150 and reiterated its overweight rating.

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