Business Corpus: Apple Services, Wearables Offset Slowing iPhone SalesApple cheered investors with better-than-expected March-quarter results, which got a lift from robust services and wearables growth as iPhone sales disappointed. The post Apple Services, Wearables Offset Slowing iPhone Sales appeared first on Investor's Business Daily.

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Apple (AAPL) cheered investors with better-than-expected March-quarter results, which got a lift from robust services and wearables growth as iPhone sales disappointed.

Shares rose 4.4% to close at 176.57 on the stock market today. Late Tuesday, the Cupertino, Calif.-based company beat Wall Street's sales and earnings targets for its fiscal second quarter and guided analysts higher for sales in the June quarter. It also announced a big increase to its capital return program thanks to repatriated foreign profits.

The company earned $2.73 a share, up 30% year over year, on sales of $61.1 billion, up 16%, in its fiscal second quarter ended March 31. Analysts expected earnings of $2.69 a share on sales of $61 billion for the March quarter.

The stock has formed a flat base over the past eight weeks with a buy point of 183.60. Its alternative entry is 179.04.

While shares jumped Wednesday, the company's stock hasn't moved significantly for more than five years. The Dow Jones component failed to keep pace with the S&P 500 since being taken off IBD's Leaderboard in September 2012.

More Than 60% Of Sales

The consumer electronics giant sold 52.2 million iPhones in the quarter, vs. analyst predictions for 53 million units. IPhone unit sales rose 3% year over year while revenue increased 14% thanks to premium priced handsets such as the iPhone X.

Apple's iPhone business accounted for 62.2% of the company's total sales last quarter. The company's second-largest business was services, which saw sales jump 31% year over year to $9.2 billion or 15% of total sales.

The company's "Other Products" category was its fastest growing segment, with revenue up 38% to $3.95 billion or 6.5% of total sales. The category includes Apple Watch, AirPods wireless earbuds, Apple TV set-top boxes, HomePod, iPod Touch, Beats headphones and other accessories.

For the current quarter, Apple expects to generate revenue of $52.5 billion, based on the midpoint of its guidance, edging Wall Street estimates for $52 billion.

On a conference call with analysts, Apple Chief Executive Tim Cook touted the company's sixth straight quarter of accelerating revenue growth. He also said the company's new $100 billion share repurchase plan showed "our strong confidence in Apple's future." The company also boosted its quarterly dividend by 16% to 73 cents a share.

Apple Services Growth

Cook said the growth of the company's services business is a "powerful illustration of the importance of our huge active installed base of devices and the loyalty and engagement of our customers." Apple has an active installed base of over 1.3 billion devices.

Services businesses include Apple Music, Apple Pay, AppleCare, iCloud, App Store and other offerings.

The company is managing over 270 million paid subscriptions. That's up 100 million from a year ago and up 30 million from the previous quarter.

"With the services that we have now and others that we are working on, I think this is just a huge opportunity for us and feel very good about the track that we're on," Cook said.

The wearables business, which includes Apple Watch, Beats and AirPods, had "another outstanding quarter," Cook said. Combined revenue was up almost 50% year over year, he added.

"Looking at its revenue over the last four quarters, our wearables business is now the size of a Fortune 300 company," Cook said.

Price Target Changes

Seven Wall Street analysts raised their price targets on Apple stock following the earnings report. But only three of them rate the stock as buy. The other four rate it as hold. Also, two other firms cut their price targets on the stock.

"While fiscal Q2 results and Q3 guidance were better than many feared, they still suggest stagnant iPhone unit demand and weaker pricing power than we anticipated entering the cycle," KeyBanc Capital Markets analyst Andy Hargreaves said in a note to clients. He rates Apple stock as sector weight with a 12-month fair value of 175.

Mizuho Securities analyst Abhey Lamba noted that Apple's results and guidance were largely in line with expectations even through consensus targets had moved lower in recent weeks. He rates the stock as neutral with a price target of 175.

Needham analyst Laura Martin found much to like in the company's fiscal second-quarter earnings report. She reiterated her buy rating on the stock with a price target of 210.

Martin noted the company's accelerating revenue growth and product diversification. There also was services growth, increased cash return program and Apple's large iOS device user base.

Morgan Stanley analyst Katy Huberty said Apple's services business is becoming the company's primary growth driver. She maintained her overweight rating and price target of 200 on the stock.

"We don't see services growth slowing anytime soon," Huberty said. Fewer than half of users pay for services now. Nascent services like Apple Music and Apple Pay are growing fast. Plus, Apple is working on new services such as a possible subscription video-on-demand offering, she said.

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