'All rests on the iPhone 12 supercycle': Here's what 5 analysts expect from Apple's quarterly earnings
- Apple is scheduled to release its fiscal third-quarter figures on Thursday, and analysts largely expect sales and profits to land above expectations.
- Yet several firms are more interested in whether Apple will issue an official forecast for its September quarter and upcoming iPhone release.
- Here's what five analysts expect when the tech giant releases its quarterly results.
- Watch Apple trade live here.
Apple is set to announce its fiscal third-quarter earnings on Thursday, but analysts are possibly more interested in the iPhone maker's profit forecasts than its last-quarter performance.
The tech giant was among the handful of mega-cap stocks to lead indexes higher through the start of the summer. The FANG coalition — Facebook, Apple, Netflix, and Google-parent Alphabet — outperformed the broader market for weeks as investors crowded into growth companies, betting they were best equipped to survive the economic slump.
Apple's fiscal second-quarter report beat muted expectations but fell below its initial guidance as early coronavirus fallout slammed revenue. iPhone sales fell 7% year-over-year, but strong growth from the company's wearables and services segments helped offset losses. Apple refrained from issuing forward guidance in its April report, leaving investors with few hints at how sales may hold up through the pandemic.
The tech rally has cooled in recent weeks, and Apple shares currently sit just below record highs. Where investors had been cheering the company for its insulation from COVID's economic fallout, they're now concerned whether the pandemic will delay a crucial iPhone release. The next-generation handset is set to be Apple's first with 5G capabilities. Some analysts expect the update to drive an iPhone "supercycle," and fear a delay could stymie the company's momentum.
Here's what five analysts expect from Apple's upcoming report. The company's shares closed at $380.16 on Wednesday.
Bank of America: 'The quarter is less consequential'
Analysts led by Wamsi Mohan are focused on Apple's services growth, September guidance, regional demand, and stock repurchase plans when it releases its quarterly report. The upcoming iPhone launch renders the current quarter as "less consequential" to the firm's overall investment thesis, and gross margin guidance will offer the best hint at whether the launch timetable stays intact, Bank of America said.
The team expects Apple to beat Wall Street's consensus estimate from its Thursday report. The tech giant "is less likely" to provide forward guidance given lasting uncertainties around the coronavirus pandemic, and Bank of America's indicators suggest its 5G iPhone will be delayed to November.
Investors should keep an eye out for weak margin growth and any deceleration in its services business, the team said. Apple continues to diversify its revenue streams from relying on the iPhone, and its services segment is one of its biggest bets. Any slowdown in share repurchase plans could also hint at Apple growing more cautious of its future cash flow, Bank of America said.
The firm maintains a "buy" rating on the stock with a price target of $410 per share.
DA Davidson: 'We believe COVID-19 has stimulated demand'
What was expected to be "the year of the 5G iPhone" has instead "become the year of the pandemic," for Apple, but that may not be entirely bad news, analyst Tom Forte said in a note. The firm said it believes the coronavirus pandemic "has stimulated demand for what had been some of the slower growing products" in Apple's portfolio, namely its laptops and tablets, as customers geared up for months of remote work. Services including Apple Music and Apple TV+ may have enjoyed a similar boost, Forte said.
The analyst expects Apple to beat revenue estimates but fall short of profit expectations in its upcoming report. Executives' commentary on store re-closings, TV+ user growth, and supply chain restoration will be closely watched. Forte will also focus on updated comments regarding Apple's rollout of 5G capable devices.
DA Davidson holds a "buy" rating on Apple shares with a price target of $355.
Goldman Sachs: 'We see Apple's recent stock performance ... as unsustainable'
Analysts led by Rod Hall downgraded Goldman Sachs' rating on Apple shares to "sell" in April and expect its latest metrics to do little to change their view. The iPhone maker's fiscal third-quarter figures will fall in line with the industry's consensus estimates, the team said, adding that they expect Apple's new iPhone to ship on schedule in the fall.
Despite keeping its 5G iPhone rollout on track, Apple still faces major risks heading into the end of the year, Goldman said. The bank expects average selling prices to weaken through the second half of 2020 and drag on 2021 results. Services growth will hold strong in the near-term but weaken next year, Hall added.
"On this basis we see Apple's recent stock performance and absolute trading level as unsustainable and would continue to recommend that investors avoid the stock," the team wrote.
Goldman reiterated its "sell" rating and lifted its price target to $299 from $263 to account for a higher S&P 500 price-earnings multiple.
Wedbush: 'All rests on the iPhone 12 supercycle'
Analyst Dan Ives sees Apple beating Wall Street's expectation for quarterly revenue and earnings come Thursday afternoon. Yet Ives maintains that the quarter ending in September will play a far more important role in determining how Apple shares move
"At the end of the day, the Apple growth story (and stock) moving higher all rests on the iPhone 12 'supercycle' coming down the pike," he wrote, adding the upcoming phone is Apple's most important launch since the iPhone 6 was released six years ago.
Commentary around demand snapping back in China will be closely watched alongside iPhone delay statements, Ives said. Wedbush expects roughly one-fifth of iPhone upgrades over the next year to come from China, and new virus outbreaks threaten to send the country back into lockdown. The firm also sees Apple's services segment continuing to lead shares higher.
Wedbush maintains an "outperform" rating on Apple shares with a price target of $450.
Morgan Stanley: 'Proving that diversification is key'
Though Apple's upcoming iPhone lineup is critical to its lofty valuation, its focus on lifting other segments is already paying off, the team led by Katy Huberty wrote.
"Apple is proving to investors that it an continue to post healthy year-over-year EPS growth ... despite slower iPhone growth, where revenue declined 3% year-over-year, on the back of Services and Wearables outperformance and significant share repurchases," the analysts said.
Morgan Stanley said it believes Apple's diversified strategy justifies its stock trading at a higher multiple. Survey data suggests smartphone upgrades over the next six months will likely trend higher than forecast, the team added. Lastly, the revived spread of COVID-19 continues to push investors into high-quality stocks like Apple's.
The tech giant will likely beat consensus estimates due to better-than-expected product sales, the bank said. A record quarter for the App Store will bolster services growth. The analysts don't expect Apple to forecast its upcoming iPhone launch or issue formal guidance for the September quarter. Yet the June quarter's figures will likely point to strong demand for the iPhone 12's launch, the team added.
Morgan Stanley holds an "overweight" rating for Apple shares with a price target of $419.
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