JP Morgan Previews Apple's Q2, Expects 'Negligible' FX Impact & Strong iPhone Sales

In a report published Monday, JP Morgan analyst Rod Hall previewed Apple Inc. AAPL's upcoming second quarter results, noting that a low foreign exchange exposure, continued iPhone momentum and hype over the Apple Watch will result in above consensus earnings growth.

Hall maintained an Overweight rating on Apple with an unchanged $145 price target.

'Negligible' Foreign Exchange Impact

According to Hall, currency fluctuations will only slightly impact international demand for Apple products. Specifically, the analyst suggested a small -0.5 percent impact on Apple's fiscal 2015 revenue, translating to a -1.3 percent impact on EPS – assuming no help from hedges, although Apple typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases for up to 12 months.

Hall's calculations concluded that 48 percent of Apple demand is U.S. dollar denominated, while more than 70 percent of its cost of goods sold (COGS) and operating expenditure are also U.S. dollar denominated.

Related Link: Analysts See China Swing Factoring In Apple's Q2

iPhone Momentum Strong, iPad Weak

Hall stated that global demand for the iPhone 6 and 6 Plus remains "strong" with above seasonal demand in weaker macro countries like China. The analyst is projecting 53.8 million iPhone shipments in the second quarter, and is now forecasting 47.5 million shipments in the third quarter.

On the other hand, Hall noted that iPad shipments will likely remain weak in the quarter with an estimated 14.7 million shipments. Looking forward to the third quarter, the analyst is forecasting 12.6 million shipments.

Capital Return Program

Hall suggested Apple will expand its capital return program to $155 billion from $130 billion and extend the target date of completion of the program to December 2016 from December 2015.

Apple Watch Commentary

Finally, Hall is expecting "a lot of focus" to surround the Apple Watch during the post-earnings conference call. Specifically, the analyst is looking for commentary surrounding shipments and pre-order numbers and the supply situation. The analyst however noted that he is unsure how much data Apple's executives will actually provide on the watch given it will be lumped into the "Other" reporting category.

Q2 Estimates

Hall is expecting Apple to earn $2.06 per share in the second quarter on revenue of $54.46 billion. The analyst also projected a gross margin of 39.3 percent, operating expenditure of $5.49 billion and EBIT margin of 29.2 percent.

Estimize, the crowd-sourced earnings estimates platform is calling for Apple to earn $2.27 per share on revenue of $57.395 billion, based on 374 estimates. The Wall Street Consensus earnings per share estimate stands at $2.18 on revenue of $56.336 billion.