New Apple Watches

Source: Apple

Apple turned in stronger than expected fourth-quarter results but a second consecutive quarter of strong growth for wearables impressed analysts, who are looking for the tech giant to innovate beyond the iPhone. 

“Wearables continue to lead growth. Many investors attributed 50% wearables growth in the June quarter to shorter lead times as demand caught up with supply, however a second quarter in a row of 50%+ [year over year] growth and the fact that Apple is beating AirPods forecasts weekly suggests strong double-digit growth is sustainable,” Morgan Stanley analyst Katy Huberty wrote in a note to investors.

Morgan Stanley has an overweight rating on Apple’s stock with a $296 price target.

Apple shares rose 1.7% in premarket trading Thursday from its previous close of $243.26 a share, after reporting solid fourth-quarter earnings and predicted strong iPhone sales. But “huge AirPod growth” helped drive Apple’s earnings, Bernstein’s Toni Sacconaghi said.

And Huberty thinks Apple’s wearables unit has room to run, as she believes there are many iPhone owners who don’t yet have an Apple Watch or AirPods. Her firm expects in fiscal year 2020 to see Apple Watch revenue to grow 24% and AirPods revenue to grow 107% year-over-year.

“Considering 3 of every 4 Apple Watch customers are new to the device, expect a long growth runway going forward,” Huberty said.

Barclays analyst Tim Long, whose firm has an equal weight rating and $236 price target on Apple, also highlighted the unit’s growth. He said Apple’s wearables performance showed “positive trends for new products,” giving hope for innovation in Apple’s hardware line finding new profits.

“New AirPods Pro likely one of the hottest Christmas gifts as well as Apple Watch for the December quarter,” Citi analyst Jim Suva said. Citi has a buy rating on Apple with a $250 price target.

– CNBC’s Michael Bloom contributed to this report.