Munster on Apple’s March Quarter: More Than a Product Cycle Stock

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Source: Thinkstock

Source: Thinkstock

Piper Jaffray analyst Gene Munster offered his thoughts on Apple’s (NASDAQ:AAPL) recently released fiscal 2014 second quarter financial results in a recent note to investors. On Wednesday, Apple announced stronger-than-expected quarterly revenue of $45.6 billion and earnings per share of $11.62. As noted by Munster, Apple’s earnings beat the Street’s estimates of $43.7 billion revenue and $10.19 EPS. Apple also reported gross margin of 39.3 percent, topping the Street’s expectation of 37.6 percent.

Not surprisingly, Munster remained bullish on Apple and maintained an “Overweight” rating and a $640 price target on the Cupertino-based company’s shares. However, even Munster was surprised by Apple’s strong iPhone sales during the March quarter. Apple said it sold 43.7 million iPhones, above Street expectations for 38.5 million, according to Munster. The Piper Jaffray analyst admitted that he had anticipated weaker iPhone sales in the months ahead of the expected release of the large-screen iPhone 6.

“Given the March quarter strength in the iPhone and gross margins, we are incrementally encouraged that there may be a reason to own AAPL shares outside of a product cycle,” wrote Munster. He noted that the strong iPhone sales were driven by emerging markets. “The strength came from China up 28%, Brazil up 61%, Russia up 97%, Turkey 56%, and India 55%.” The analyst also credited Apple’s recent distribution deal with China Mobile (NYSE:CHL), the world’s largest carrier. Apple’s iPhone unit sales grew by 17 percent compared to the year-ago quarter, but Munster estimated that iPhone unit growth would have only been 11 percent without the China Mobile deal.

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