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Apple Q4 Earnings Preview: Analysts Expect Muted Quarter Ahead Of iPhone 12 Strength

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Apple Q4 Earnings Preview: Analysts Expect Muted Quarter Ahead Of iPhone 12 Strength

Apple Inc. (NASDAQ: AAPL), the first U.S. company to hit the $2-trillion market cap landmark, is scheduled to report its fiscal year 2020 fourth-quarter results Thursday, Oct. 29, after the market close.

Q4 Expectations For Apple: Analysts, on average, estimate Apple to report earnings per share of 71 cents on revenue of $64.16 billion, according to the Yahoo database.

This compares to EPS of 76 cents and revenue of $64.04 billion in the fourth quarter of 2019.

Morgan Stanley analyst Katy Huberty estimates EPS of 62 cents and revenues of $60 billion, with iPhone and Services revenues comprising $22.9 billion and $14.5 billion, respectively.

The consensus estimate, which bakes in iPhone revenue of $28.5 billion — assuming 40.4 million shipments and an average selling price of $705 — is too high, the analyst said.

New products typically account for about 47% of iPhone revenue in the fourth quarter, and the just-concluded fourth quarter lacked any new product, she said. 

Investors are likely to brush aside the September quarter iPhone results, given the focus on the iPhone 12, Huberty said.

Related Link: Why iPhone 12 Will Be Another 'Defining Chapter' In Apple's Growth Story

Optimism On Apple's Future: For the December quarter, the Street is modeling EPS of $1.36 on revenue of $100.22 billion.

"The iPhone 12 launch has become a subscription battleground for carriers, as they are all offering sizable promotions to keep or add new customers. We feel these promotions will drive iPhone 12 demand over the next several months," Piper Sandler analyst Harsh Kumar said in a note.

The analyst raised his iPhone unit estimates for the December quarter by about 8 million units to 73 million units, translating to iPhone revenue of $62.8 billion.

The upside relative to the consensus iPhone revenue estimate of $59.9 million is primarily driven by the firm's carrier subsidy thesis, he said.

Morgan Stanley continues to see upside to both fiscal year 2021 and longer-term EPS estimate for Apple. 

Higher lead times — the time between ordering and receiving a device — over a multi-month period typically signal stronger-than-expected iPhone shipment growth over the cycle, Morgan Stanley's Huberty said.

The initial data points for the iPhone 12 cycle are trending positively, the analyst said. 

As of Oct. 20, average lead times are 18.5 days for the iPhone 12 Pro and 10.1 days for the iPhone 12, she said. 

"That ranks the iPhone 12 Pro third behind the iPhone X and iPhone 11 Pro/Pro Max at this point in the cycle, and ranks the iPhone 12 just behind the iPhone 11 but ahead of the iPhone 8/8 Plus." 

Morgan Stanley would buy any dip in Apple shares after the Oct. 29 quarterly report on the basis of iPhone 12 strength and positive earnings revisions on the horizon, Huberty said. 

AAPL Stock: Apple shares added about 27% during the calendar year third quarter and are up a steeper 60% year-to-date. 

Morgan Stanley rates Apple shares with an Outperform and$136 price target.

Piper Sandler reiterated an Overweight rating and increased the price target from $130 to $135.

At last check, Apple shares were slipping 0.8% to $115.94.

Related Link: Apple's iPhone 12 Battery Drains Faster Than Androids On 5G: Report

Photo courtesy of Apple. 

Latest Ratings for AAPL

DateFirmActionFromTo
Nov 2020Loop CapitalUpgradesHoldBuy
Oct 2020Raymond JamesMaintainsOutperform
Oct 2020Piper SandlerMaintainsOverweight

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