Apple will lift the curtain on its latest quarter on Tuesday. Here are all the concerns that could shake investors.

Rebecca UngarinoApr 30, 2019, 15:31 IST

Apple

Apple is scheduled to report its fiscal second-quarter results on Tuesday afternoon.
Analysts are essentially split between bullish and neutral ahead of the report, with big questions lingering over iPhones sales and what kind of growth its new services could bring.
Shares are still 12% below their all-time high after staging a 45% rally since their December low.
Watch Apple trade live.

Apple analysts have no shortage of questions and concerns ahead of the tech giant's highly anticipated fiscal second-quarter report set for release on Tuesday afternoon.

Weakened iPhone demand? Perhaps it's already priced into the stock. Unhealthy iPhone mix? Perhaps it's improving. Softness in the Chinese economy impacting sales? Hopefully we'll get updates.

Those were some of the biggest themes and debates on analysts' minds ahead of results, which are expected to reflect a drop in profits and sales from Q1.

"Off low expectations, results/guide should be fine," UBS analysts led by Timothy Arcuri wrote to clients last week, adding the company's iPhone mix "remains challenging," but that foreign-exchange headwinds should start to ease in June.

They said: "The big unknown remains China and 3rd party gov't data did not show much iPhone improvement."

Apple's services segment will be another closely watched point, particularly after the company's special event last month fell flat with investors.

Some analysts suggested there was too much optimism priced into services' growth potential.

"Deterioration in optimism around Services could prompt us to get more positive on AAPL, while signs of material defections by users to Android or elevated regulatory scrutiny of the App Store could prompt us to get more negative," KeyBanc Capital Markets analysts said in a note to clients last week.

Wall Street has grown increasingly cautious on Apple shares, and as of Monday the number of those bullish and neutral were nearly split. Of those analysts polled by Bloomberg, 22 say "buy," 21 say "hold," and three say "sell."

According to data compiled by Bloomberg, Apple is expected to post adjusted earnings of $2.37 a share on $57.5 billion in revenue. Last quarter, Apple reported earnings of $4.18 a share on revenue of $84.3 billion.

Apple shares have jumped 45% since their December low, but still trade 12% below their all-time high last of $233.47 a share that was reached in October.

Here's a snapshot of what else Wall Street analysts are saying:

See Apple will lift the curtain on its latest quarter on Tuesday. Here are all the concerns that could shake investors. >>

Credit Suisse: 'Looking for an iPhone trough, but recovery will take time'

Price target: $209

Rating: Neutral

"Heading into C1Q, we're most focused on the trajectory of iPhone following the sharp drop-off in Dec; we expect iPhone units/sales of 41.8mn/$30.6bn (-20%/-18% y/y), though believe the worst is likely behind us this cycle supported by 'less bad' supply chain data points," analysts led by Matthew Cabral wrote to clients last week.

The Greater China region is an important "swing factor" for the company right now, the analysts said. While near-term pressures like macroeconomic weakness and trade tensions have somewhat lifted, "underlying structural headwinds remain," they added.

The analysts said they're staying on the sidelines and waiting for a better entry point with shares now up 46% from their January low, and near a peak multiple of 15.5x forward earnings.

Morgan Stanley: 'We believe the stock can continue to work from here'

Price target: $234 (upped from $220)

Rating: Overweight

"Despite the 40%+ rally from the lows following the December quarter pre-announcement on Jan. 2nd, we see a number of reasons to remain bullish," analysts led by Katy Huberty wrote in a note to clients last week.

The analysts are encouraged by a few elements:

They believe investors underappreciate Apple's platform, with iOS users' mobile- app spending 10 times that of Android users.
iPhone data points have begun stabilizing, the analysts have found.
Apple and Qualcomm's settlement increases the likelihood of Apple launching a 5G iPhone in 2020, which the stock typically begins pricing in six to nine months in advance, they said.

"Lastly, our conversations with institutional investors suggest most are uninvolved or underweight/short despite the likelihood of Services growth re-accelerating, iPhone declines moderating,and continued share price support from the company buying back stock," they added.

Bank of America Merrill Lynch: 'Focus on gross margins'

Price target: $220

Rating: Buy

"In our opinion, investors expect fundamentals to be weak heading into AAPL earnings despite the recent move in the stock," analysts led by Wamsi Mohan wrote in a note to clients last week.

Investors will likely be focused on factors including gross margins (expected to be low given Apple's discounting to clear iPhone inventory), services growth expectations of around 20%, overall revenue within the guided range of $55 billion to $59 billion, updated demand commentary from China and other emerging markets, and any color on the company's Qualcomm settlement.

UBS: 'Earnings/Guidance Should Be Fine'

Price target: $235 (upped from $215)

Rating: Buy

"Off low expectations, results/guide should be fine," analysts led by Timothy Arcuri wrote in a note to clients last week.

"iPhone mix remains challenging, but FX headwinds also start to abate in June. The big unknown remains China and 3rd party gov't data did not show much iPhone improvement post-CNY," though the worst seems to be behind investors, they added.

Raymond James: 'Darkness, But a Potential Dawn'

Price target: N/A

Rating: Market perform

"While we had been seriously concerned that Apple would miss the CY20 5G cycle, that has now changed after their settlement with Qualcomm," analysts led by Chris Caso wrote in a note to clients last week.

"Certainly Apple has to contend with a serious deterioration in mix (which causes us to cut our FY20 estimates), and the math just doesn't work for a Services bull thesis."

While firm is encouraged by the the potential for a 5G phone, pointing to that as a bright spot in an uncertain Apple narrative, they're concerned that the iPhone mix "deteriorating."

Wells Fargo: 'Cautious Stance' ahead of earnings

Price target: $190

Rating: Market perform

Analysts led by Aaron Rakers said in a note last week that they "struggle to look past the weak iPhone demand-related data points and recommend a cautious stance" into quarterly earnings.

They're encouraged by the company's Qualcomm settlement, their belief that iPhone weakness concerns are largely priced into the stock, and Apple's expansion into subscription services.

"The rate of expansion of Apple's installed base should remain a key focus," the analysts added.

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