Apple Q3 preview: Where next for AAPL stock?

When will Apple release Q3 earnings?

Apple is scheduled to release third quarter earnings after US markets close on Thursday July 28.

The company will hold a conference call on the same day at 1400 PT, or 1700 ET.

Apple Q3 earnings consensus

Wall Street forecasts Apple’s revenue will rise 1.5% to $82.7 billion in the third quarter of its financial year, while adjusted EPS is forecast to plunge over 11% to $1.16. Notably, Apple has beaten sales and earnings expectations in seven out of the last eight quarters.

Apple Q3 earnings preview

Wall Street anticipates Apple will report its slowest sales growth since the start of the pandemic and book its first quarterly drop in EPS in almost two years when it releases third quarter results this week, as profits come under pressure from rising costs.

One reason for the tepid topline growth and lower earnings will be the extremely tough comparatives from the year before, when quarterly EPS more than doubled as demand for tech exploded during the pandemic. We could also see the strong US dollar weigh on sales, and possibly temper its growth expectations going forward considering numerous multinational businesses have flagged this headwind in recent weeks. For context, Apple makes over half of all its sales outside of the US. Meanwhile, operating costs are expected to be some 15% higher than last year, outpacing the rise in revenue and squeezing its margin to 27.3% from 29.6% the year before and the 30.8% reported in the previous quarter.

The major headwind in the third quarter will have continued to be Covid-19 disruption in China and supply chain constraints, which it warned would cost it between $4 billion to $8 billion in sales. Softer demand twinned with supply headwinds has led Wall Street to believe device sales will be down 2.3% from last year at $62.5 billion. The declines will be led by iPhones and iPads and only partly cushioned by a rise in sales of Mac computers, wearables and home devices.

However, this will be countered by its much smaller but also higher-margin digital services unit - which is home to the likes of its App Store and video streaming service. The division is expected to see revenue grow 12.8% to $19.7 billion.

Commentary on the outlook will be closely watched as we enter the final quarter of the financial year, when attention will shift toward the launch of its next iPhone model, although Apple has not been providing guidance numbers this year. Lockdowns in China have eased but the zero-tolerance approach to Covid-19 is still causing disruption to supply chains. We could see fears shift from supply to demand going forward as the cost-of-living crisis starts to bite. Data suggests demand for Apple’s hardware has proven more resilient versus the wider market, although news from Bloomberg this week that it is set to launch a rare four-day discount event on iPhones and other products in China suggests it may be dealing with surplus inventory levels.

Wall Street believes Apple will grow both its top-and-bottom lines in the fourth quarter which, if achieved, puts the company on course to report a 7.6% rise in annual revenue this year and a 9% increase in EPS.

Importantly, with over $28 billion in cash and equivalents and Apple aiming to become cash neutral over time, the company’s EPS figures are likely to be bolstered through an acceleration in share buybacks, which help reduce the number of shares in issue to inflate the figure. The fact Apple shares are still down some 16% compared to the start of the year could encourage Apple to capitalise by accelerating the programme once again.

That means shareholder returns are safe, having raised its dividend in the last quarter by 5% and increased its share buyback programme by a whopping $90 billion – having returned just over $88 billion in buybacks in 2021 alone.

Where next for AAPL stock?

Apple shares have been trending higher since hitting a one-year low of $129 in the middle of June, with the stock currently testing the 100-day moving average at $153.

The stock needs to continue climbing in order to keep the uptrend intact. If it can recapture the 100-day moving average, then the 200-day average at $157 comes into play. The stock could swiftly rebound to $168 if it can gain momentum. The RSI is now in bullish territory, although we have seen trading volumes decline to suggest the current uptrend could be running out of steam. The 5-day average-volume-at-time has dropped over 7% compared to the 10-day average and sits over 26% below the 100-day average.

Still, the 49 brokers that cover Apple believe the recovery is only just getting started considering they have an average target price of $183, implying the stock can climb back to the all-time high seen in January and that there is still almost 20% potential upside from current levels.

On the downside, $150 should be treated as the initial floor should the uptrend break. If this fails, then shares are likely to falter back toward the 50-day moving average at $143.

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