An Apple Bear throws in the towel and removes the sell rating


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“We are abandoning our sell rating…seeing no indication that our thesis is coming to fruition,” wrote Pierre Ferragu, an analyst at New Street Research.

Sascha Steinbach/Getty Images for Apple

One of Wall Street’s last


bear threw in the towel.

Apple (ticker: AAPL) released better-than-expected results for the December quarter on Thursday evening, driven in particular by a huge period for the iPhone. The company said iPhone sales in the quarter were $71.6 billion, up 9% from a year earlier, and about $4 billion above estimates. Street. The company also posted another quarter of impressive growth in services, with revenue of $19.5 billion, up nearly 24%. And Apple said supply constraints — which hampered results in the quarter, especially for iPads — would be less severe in the March quarter.

Based on all of this, New Street Research analyst Pierre Ferragu dropped his sell recommendation on Apple shares, setting a Hold rating and a target of $165 on the stock. While still not bullish, Ferragu conceded in a research note on Friday that his bearish thesis on Apple stocks was simply wrong. “We are dropping our sell rating… seeing no indication that our thesis is coming to fruition,” he wrote.

Ferragu’s old view was that there would be a “normalization” of consumer spending on personal electronics as a result of the pandemic, and that we were headed for “an air pocket in replacement demand iPhones” as the average age of the installed base decreases. He also believed that the fact that the iPhone 13 “offers limited innovation” would slow sales. Ferragu expected sales in the quarter to be down 10% to 15% from a year earlier.

But the analyst now admits there are no signs of slowing iPhone demand. “Management commented positively on iPhone demand, such as a record number of upgrades and strong double-digit Switch growth in China,” he wrote. “Contrary to our expectations, market share gains against Huawei may have played an important role. »

The analyst noted that Apple’s gross margins improved sharply in the quarter – more than three percentage points – in part due to the popularity of the higher end of the iPhone 13 line, where profitability is higher. high. “It may be that in the face of weaker unit demand, Apple has orchestrated strong channel support for high-end devices, as seen with US carriers, and the scarcity of low-end devices, thus maintaining a strong revenue dynamics,” he wrote.

Ferragu also says there appears to be “outsized” consumer demand for the latest phones. “We have seen exceptional consumer demand for high-end consumer electronics since the start of the pandemic, and against our expectations, we have yet to see any signs of slowing down,” he writes. “This environment may have simply broken traditional replacement patterns, making the iPhone 13 yet another phone exceptionally well received by consumers.

The analyst says he now sees iPhone revenue growth of around 5% this year and next. Ferragu raises his estimate of Apple’s earnings per share to $6.05 from $5.23 for this year, and to $6.59 from $5.50 for fiscal 2023. He now expects revenue from the Apple’s Fiscal 2022 iPhone Totaled $201.3 Billion, vs. Previous Estimate of $176.7 Billion; for fiscal 2023, it now forecast revenue of $213.7 billion, up from $186.2 million previously.

Ferragu, however, is also not ready to recommend the stock.

“We recognize the quality of Apple’s ecosystem… but, on the other hand, we would always be concerned that the current exceptional level of demand could at some point lead to a material setback, driven by a normalization of demand and a demand exhausted replacement pent,” he wrote. “On the positive side, we see limited room for multiple expansion, and while we see continued earnings growth, bolstered by buybacks, we don’t see the stock appreciating sustainably faster than earnings growth. “

On Friday, Apple stock rose 4.8% to $166.88.

Write to Eric J. Savitz at [email protected]


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