A year ago,
investors were single-mindedly focused on the expected launch of the company’s launch of 5G iPhones, with widespread anticipation that the new lineup would unleash a torrent of pent-up demand. This year, expectations for this fall’s iPhone launch are more muted. The buzz on the new iPhone? There’s no buzz.
But with Apple (ticker: AAPL) stock lagging the market this year after an 81% rally in 2020, investors are taking the time to look at the rest of the portfolio. On Tuesday, two analysts zeroed in on the company’s growing services business—and they like what they’re seeing.
Morgan Stanley hardware analyst Katy Huberty lifted her services-revenue growth estimate for fiscal 2021 ending September to 22%, from 19%—she notes that consensus is for 18% growth. She now sees services revenue of $65.7 billion this year, growing to $77 billion in fiscal 2022.
Huberty notes that the tweak results in higher overall revenue and profit estimates for both this year and next year. She now sees fiscal 2021 overall revenue of $337.9 billion, up from $336.1 billion, and ahead of the Street at $33.5 billion. Her earnings-per-share estimate for the year goes to $4.51 from $4.47, ahead of the Wall Street analyst consensus estimate at $4.45.
Huberty writes in a research note that she’s revised her model in part to show a higher contribution from Apple’s search relationship with Google – an area where she thinks the Street consensus is underestimating growth. She also notes that preliminary data from the research firm Sensor Tower shows that App Store revenue was up 28% in the March quarter.
Huberty maintains her Overweight rating on Apple stock, but trims her price target to $156 from $164 to reflect “peer multiple compression.”
Meanwhile, Cowen analyst
took a deep dive into Apple’s News+ service, which he calls a “key pillar” in the company’s growing subscription business. He thinks the company’s News platform can grow from $1 billion in revenue in fiscal 2020 to $2.2 billion by fiscal 2023, with 19 million subscribers and market-share gains in advertising.
“We believe Apple’s News app and the News+ paid subscription service are well positioned to not only benefit from incremental subscriber additions but also accelerating advertising revenue growth from an improving advertising platform and potential share gains from its pro-privacy stance,” he writes.
Sankar maintains his Outperform rating and $153 target price on Apple stock.
Apple will report March quarter earnings after the close of trading on April 28.
Apple stock on Tuesday is up 0.8% to $126.89.
Write to Eric J. Savitz at firstname.lastname@example.org