Wall Street analysts are loving Apple's ‘best quarter ever’ for services business

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Wall Street is impressed by Apple's strong June quarter earnings results.

Analysts say they are growing more confident in Apple's services business, which includes its App Store, music subscription and cloud services offerings.

The smartphone maker on Tuesday posted better than expected fiscal third-quarter earnings per share of $2.34, beating the $2.18 Thomson Reuters consensus. Apple also gave sales guidance above Wall Street expectations for its September quarter.

Its shares was up 4.2 percent in early trading Wednesday.

Bank of America Merrill Lynch reiterated its buy rating for Apple, citing the company's growth in its services segment. Its sales grew 31 percent year over year in the June quarter versus the 26 percent Wall Street consensus.

"This was the best quarter ever for Services with Apple reporting strength from App Store, Apple Music, Apple Care and Apple Pay," analyst Wamsi Mohan said in a note to clients Tuesday. "Management remains confident in doubling its F2016 Services revenue by F2020."

Mohan reaffirmed his $230 price target for Apple shares, representing 21 percent upside to Tuesday's close.

Morgan Stanley said Apple's services growth may make up for any future slowdown in iPhone sales.

"We see more upside than downside risk to the upcoming iPhone product cycle and a building Services narrative. Even if device revenue growth slows, Services and Wearables can pick up the slack," analyst Katy Huberty said in a note to clients Wednesday.

“You do not want to give Jeff Bezos a seven-year head start.”
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Huberty reiterated her overweight rating and $232 price target for Apple shares.

One Wall Street analyst specifically called out Apple's paid subscription offerings, which contributed to its better than expected services sales growth.

Apple's "services revenue growth rate … [drove] upside in Jun qtr," Piper Jaffray's Michael Olson said in a note to clients Wednesday. "It was a beat and was largely driven by paid subscription (which is a significant and growing part of services revenue) growth, including Apple Music, iCloud, etc."

Olson reaffirmed his overweight rating and raised his price target to $218 from $214 for Apple shares.