Citigroup and Lehman Brothers were among the firms that raised their price targets on Apple stock, a day after the company posted a higher quarterly profit on strong Macintosh computer and iPod sales.
Apple's net income rose 36 percentto $1.05 billion, helped by strong sales of Macintosh computers and iPods, and revenue rose 43 percent. But the company saw its profit margin fall and issued a cautious outlook.
The analysts said momentum in Apple's Mac business and iPhone 3G would offset weak margins and deceleration in iPod sales. Apple's results, they said, are likely good enough to keep its stock stable following its recent run -- Apple shares have risen 22 percent over the last month.
Apple sold 1.7 million iPhones, at the high end of Wall Street estimates, during the quarter. Apple finance chief Peter Oppenheimer said he was confident the company would hit its goal of selling 10 million of the devices by the end of 2008.
Apple is widely expected to launch a faster iPhone model in a few months, to address a major complaint about the gadget, especially in Europe. Executives declined to discuss any future products on a conference call with analysts.
However, while iPhone shipments were ahead of its estimates, iPod trends continued to weaken.
IPods decelerated 17 percent in December through February, until the $30 price cut for the iPod shuffle in February boosted weekly sales rates, RBC Capital said.
Lehman Brothers said Mac, iPod and iPhone units all beat estimates with solid demand and no inventory surplus, adding that concerns around Apple's gross margins were overblown.
Apple's gross margins fell to 32.9 percent in the second quarter, from 35.1 percent a year ago.
The company blamed the slide on lower sales of its Leopard operating system, a price cut on the low-end iPod shuffle and higher sales at its iTunes online music and movies store.
Some analysts wondered if Apple's conservative forecasts may turn out to be on the mark given the weak US economy and component prices that may be stabilizing after months of declines.
"Last quarter they guided margins to 32 percent and people didn't take it at face value," said Shaw Wu, analyst with American Technology Research. "This time it sounded like it maybe wasn't so conservative after all."
RBC said investors would look past the gross margin softness and focus on the stronger momentum, product cycle/catalysts, share gains, iPhone 3G and Apple's growing market opportunity.
Citigroup said, "Despite the lower-than-expected gross margin, revenue and unit upside is obviously a preferable outcome."
Amazon Warning Rattles Stock
Amazon.com shares skidded after the online marketplace warned that profit margins would narrow in 2008 as it kept prices in check, even as quarterly results topped Wall Street targets and the Web retailer raised its 2008 sales forecast.
Wall Street took the news as a sign the weak US economy was forcing Amazon to keep prices low, a strategy that depresses profit margins. Gross margins, which fell below year- ago levels, have been a recurring source of investor worry as company investments, competition and now the threat of recession pressured profitability.