LOW EXPECTATIONS SET UP BIG GAINS FOR APPLE INC. SHARES

Investors had muted expectations heading into Apple Inc.’ s Q3 results, so when the tech giant produced better- than- expected earnings on strong iPhone sales, the market reacted positively. Apple shares had been slumping prior to Tuesday’s earnings, down about 14 per cent from a 2016 high above US$112 in April. However, the stock rallied sharply on Wednesday, trading up more than seven per cent, near US$104. “Amazing things happen when investors don’t expect much,” said Amit Daryanani at RBC Capital Markets. Not only did revenue and earnings per share exceed forecasts, but its September guidance surprised on the upside, the firm reduced its iPhone inventory by four million units and the lower- priced iPhone SE is seeing strong demand. Daryanani noted demand for the iPhone SE came in above supply, while the number of customers switching from Android and other platforms in the first nine months of the fiscal year was the highest on record. The lower-priced smartphone contributed to a lower iPhone average sales price (ASP). However, Q3 iPhone sales of 44 million were higher than anticipated. Daryanani maintained an outperform and US$115 price target on Apple shares. T. Michael Walkley at Canaccord Genuity noted that while iPhone ASPs fell short of his US$621 forecast, management anticipates an improvement in the coming quarter. “The strong mix of the iPhone SE during the June quarter was consistent with our survey work indicating demand was greater than supply for the SE throughout the June quarter.”