Strong Apple earnings are priced in after a 26% rally in the stock this year, JPMorgan says
- Strong earnings appear to be priced into Apple stock, which has surged more than 26% this year, JPMorgan analysts led by Samik Chatterjee wrote in a Monday note.
- The company is scheduled to release its fiscal third quarter earnings on Thursday at 5 p.m. ET.
- "We believe investors looking for further upside have to focus on the longer-term earnings trajectory rather than expect near-term upside, as the likelihood of an earnings beat in F3Q (Jun) as well as strong early 5G cycle volumes (driving upside to calendar 2H20 estimates) appear to be priced in," said Chatterjee.
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Following a more than 26% rally in Apple shares this year, strong earnings appear to be priced in, according to JPMorgan.
In the last three months, Apple has outpaced the S&P 500 index, boosted by investor sentiment that the company would be one of the "the primary beneficiaries of the easing restrictions and normalization in demand trends in 2H20," analysts led by Samik Chatterjee wrote in a Monday note.
But now, "We believe investors looking for further upside have to focus on the longer-term earnings trajectory rather than expect near-term upside, as the likelihood of an earnings beat in F3Q (Jun) as well as strong early 5G cycle volumes (driving upside to calendar 2H20 estimates) appear to be priced in," said Chatterjee.
The company is scheduled to report its fiscal third quarter results on Thursday. Chatterjee boosted his Apple price target to $425 and reiterated his overweight rating on shares.
"We continue to be positive on AAPL shares led by the combination of strong replacement cycle with upcoming 5G iPhone launches, leverage of a strong Services portfolio benefiting from large installed base of users, as well as an underappreciated leverage to WFH trends," said Chatterjee.
JPMorgan boosted its iPhone volume forecast for the third quarter to 26 million from 21 million, led by better demand for the iPhone SE and 11. The firm expects moderate services revenue growth, and overall earnings per share of $1.97 on $49 billion in revenue.
The firm doesn't expect Apple to give a guidance for fourth quarter earnings or provide much insight on the timing of its next launch, but doesn't see this being a huge problem for investors looking at the long-term trend.
"With a large majority of investors looking at a long time horizon on AAPL shares, we see limited headwinds to the investment thesis on a potential 1-month delay to iPhone launch timing, and expect investors will be using any weakness from further newsflow around launch timing as an opportunity to participate in the longer-term upside," said Chatterjee.
