Tim Cook 'Ripped The Band-Aid' Off Apple's Guidance

• Despite a slight recovery over the last few trading days, shares of Apple Inc. (NASDAQ: AAPL) have lost 7 percent since December 28.
• FBR & Co’s Daniel H. Ives maintained an Outperform rating for the company, while reducing the price target from $150 to $130.
• While Apple’s F1Q16 results were better than feared, the uptake of the latest iPhone product cycle is weaker than expected.

Apple reported its total revenue for the December quarter at $75.9 billion, representing 2 percent year-over-year growth, marginally missing the Street’s estimate of $76.6 billion. iPhone revenue came in at $51.6 billion, up 1 percent year-over-year, ahead of the Street’s estimate of $51.3 billion. This was led by better-than-expected ASPs.

Margins were helped by declining component costs, enabling Apple to record an EPS of $3.28, beating the Street's estimate of $3.23.

Related Link: Apple's iPhone, iPad And Mac Sales All Missed Estimates

Analyst Daniel Ives wrote, “Overall, the quarter took a back seat to March guidance, which was the Street's focus as Cook finally ripped the band-aid off and lowered Cupertino's outlook based on softer 6s demand and a choppy macro.”

Since the Street had expected worse, the March guidance seemed "better than feared," Ives pointed out. Apple still has a few challenging quarters ahead, until it reaches the buildup around iPhone 7 later in 2016. This is what could help the company back to healthy growth.

The total revenue and EPS estimates for F2Q16 have been reduced from $55.6 billion to $52.3 billion and from $2.33 to $1.97, respectively, largely due to weaker uptake of the latest iPhone product cycle.

The total revenue and EPS estimates for FY16 have been reduced from $238.9 billion to $225.8 billion and from $9.65 to $8.95, respectively. The total revenue and EPS estimates for FY17 have been reduced from $255.5 billion to $243.9 billion and from $10.54 to $10.07, respectively.

“Apple has been in this position before, although pressure is building for Cook to show success outside its core iPhone DNA to give investors confidence in a multifaceted growth story heading into the next few years via organic and potentially acquisitive means with $200 billion-plus of cash,” the analyst commented.