Apple Q3 Earnings Preview: A Focus On Balance Sheet And Cash In Cupertino

Apple Q3 Earnings Preview: A Focus On Balance Sheet And Cash In Cupertino

Apple Inc. AAPL is scheduled to report earnings results from the third quarter of fiscal 2020 after the close Thursday.

Expectations Around Apple's Q3: Apple shares are trading off a record high of $399.82 that was reached on July 13.

Investors are viewing headline June numbers with a grain of salt, given the COVID-19 pandemic, supply chain and macro pressures around iPhone sales, a focus shift to Services strength and a rebound trajectory in the key China region, Wedbush analyst Daniel Ives said in a note. 

Key Apple Numbers: Analyst, on average, estimate the Cupertino, California-based tech giant will report earnings per share of $2.04 compared to $2.18 one year ago. 

The consensus estimate calls for revenues to decline from $53.84 billion to $52.13 billion.

The company did not issue guidance for the June quarter, citing uncertainty due to the pandemic.

Apple could comfortably beat the consensus, Ives said, citing his analysis of global iPhone sales coupled with a robust Services business. 

Revenue and EPS are likely to come in at $49.5 billion and $1.92, respectively, according to research analyst-turned-tech venture capitalist Gene Munster of Loup Ventures. 

Munster expects iPhone revenues of $20.8 billion, down 20% and below the Street estimate of $22.2 billion; and Services revenues of $13.5 billion, up an estimated 18% from last year.

Wearable revenues are likely to increase 15%, he said.

At the moment, the most important metrics for Apple are its balance sheet and ability to generate cash, as these will determine how well the company can weather the coronavirus pandemic, Munster said.

The analyst expects the company to end the June quarter with $75 billion in net cash and nearly $180 billion in total cash.

See also: Loup Ventures Revisits 2020 Tech Predictions: Apple As The FAANG Leader, Tesla Delivery Beats And More

Spotlight Turns to iPhone 12 Launch: The stage is set for a massive, pent-up iPhone cycle heading into the fall, both in the key China region and globally, Ives said.

About 20% of iPhone upgrades — 60-70 million — will come from China this coming year, the analyst said. 

Four iPhone 12 models, with a mix of 4G and 5G and price points potentially lower than $1,000 on some versions, are likely to be launched, he said. 

Apple's Outlook: Analysts, on average, expect Apple's fourth-quarter EPS to land at $2.81 on revenue of $61.96 billion.

The company is unlikely to provide guidance for the September quarter, Munster said.

For fiscal year 2020, EPS and revenue are estimated at $12.43 and $264.35 billion, respectively, up 1.6% year-over-year.

Munster named the following seven themes as drivers of Apple's growth over the next decade:

  • 5G fueling an upgrade cycle
  • Original content and streaming entertainment forming a bigger part of media consumption
  • Increasing penetration of software services
  • Growing use of Apple Pay
  • Health becoming personal and preventative
  • Augmented reality
  • Autonomous systems

Apple's Stock: Ives has an Outperform rating and $450 price target on Apple shares, with a bull case price target of $525.

Wedbush named Apple as its favorite 5G play. This is based on the firm's premise that about 350 million of Apple's 950 million iPhones worldwide are in this upgrade window, the analyst said. 

Munster said the stock is on track to reach $500 and beyond, given Apple's prospects over the next five years and the possibility of multiple expansion. 

Apple shares have gained 30% in the year-to-date period, and in the June quarter, the shares added about 44%.

Related Link: Apple Analyst Braces For 'Friday The 13th'-Like Q2, Says iPhone On Track

Apple CEO Tim Cook. Courtesy photo. 

Posted In: Daniel IvesGene MunsteriPhoneLoup VenturesWedbushEarningsPreviewsTop StoriesTechTrading Ideas