Apple Q2 Earnings: Why Analysts Expect iPhone Maker's Stock To Hold Up Even If Guidance Falls Flat

Zinger Key Points
  • After a strong FAANG earnings season, investors look ahead to Apple to tow in line.
  • The company is due to report Thursday after the close.
  • Apple's AI focus and shift in investment case to consumer staple should support a higher valuation, Munster says.

Apple, Inc. AAPL is the last among the FAANGs to report its March quarter results. The results are important because they could confirm or question the strength of quarterly reports from other big techs.

Key Q2 Expectations: Cupertino, California-based Apple is expected to report earnings per share of $1.43 per share on revenue of $92.96 billion.

  • The consensus EPS estimate of $1.43 suggests a 5.92% drop from the year ago's $1.52 and a roughly 24% drop from the previous quarter's $1.88.
  • Street revenue estimate of $92.96 would mark a 4.4% drop from the year-ago quarter's $97.28 billion and a 20.7% decline from the first quarter's $117.2 billion.

It has to be noted here that the second quarter is one of Apple's seasonally slow quarters, coming right after the holiday-selling period.

In a recent note, Morgan Stanley analyst Erik Woodring said that he expects in-line March quarter results.

Citing continued uncertainty, Apple refrained from giving revenue guidance for the second quarter. CFO Luca Maestri said on the first-quarter earnings calls that the company expects revenue performance similar to the December quarter and forex to continue to be a headwind.

Woodring said he expects Apple to announce a $90 billion incremental buyback authorization and a 5% year-over-year increase in dividends.

See Also: Everything You Need To Know About Apple Stock

Business Segments: iPhone revenue is likely to come in line or slightly higher than estimates, most analysts say. Wedbush's Daniel Ives said he sees some upside in iPhone shipments, thanks to a clear uptick in demand in China. Higher average selling prices and overall upgrade activity should help, he added.

Ives estimates ASPs of around $900-$925 for the quarter.

Woodring expects iPhone revenue of $50.3 billion, with shipments at 54.5 million and ASPs at $922 due to a strong high-end mix. This should help offset the effect of some discounting in the international markets, he added.

The Morgan Stanley analyst recently trimmed his Mac shipment forecast from 4.8 million units to 4.3 million units, consequently taking down the product’s revenue estimate by 10% to $6.3  billion.

Woodring expects Services revenue to come in at $20.9  billion, up 5.7% year-over-year and 20 basis points above the consensus. Ives forecasts stable Services revenue due to an uptick in App Store revenue.

Deepwater Asset Management's Gene Munster said investors are also likely to focus on the active installed base, which rose 8% year-over-year to over 2 billion in the first quarter.

“A growing base means the Apple product flywheel is working,” Munster said.

June Quarter Could Be Soft: Morgan Stanley's Woodring expects June quarter revenue of $80.3 billion, marking a 3% year-over-year decline. This is below the consensus estimate of $84.71 billion.

He premised his expectation on 41 million units of iPhone shipment and a $901 ASP and lower Mac, iPad and Services revenue. The variance of June quarter revenue vis-à-vis consensus is primarily due to Woodring’s softer iPhone revenue forecast at $37.2 billion.

Build strength in April and May could weaken as the trough of the iPhone 14 cycle approaches, he said.

Morgan Stanley, however, expects a better-than-consensus gross margin forecast for the quarter due to more favorable forex comparisons and further operational expenditure discipline.

Read Next: Can Tesla Beat Apple In Market Value? Analyst Points To ‘Huge Missed Opportunity’

Apple Stock: Apple shares have gained 29.1% in the year-to-date period, outperforming the S&P 500 Index, which added 6.5% during the same period.

Woodring noted that a March quarter beat and June quarter guide down have not historically produced a negative post-earnings stock reaction. Investors typically look past the trough of the cycle to the upcoming iPhone launch.

Munster said Apple's investment case will likely shift to a consumer staples company that should yield a higher multiple. "On top of that, Apple is making meaningful progress in AI, a dynamic that is under-appreciated by investors," he added.

The average analysts' price target for Apple stock, according to TipRanks, is $177.23%, suggesting a roughly 6% upside from current levels.

In premarket trading on Thursday, Apple shares fell 1.06% to $165.67, according to Benzinga Pro data.

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Posted In: Analyst ColorEarningsEquitiesNewsPreviewsTop StoriesAnalyst RatingsTechDeepwater Asset ManagementErik WoodringGene MunsteriPhoneMorgan StanleyWedbush
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