- Sales are forecast to decline for third straight quarter while earnings are expected to be flat
- Yet, Apple shares sit at all-time highs as markets embrace the fact it is outperforming rivals during a tough time for electronic device makers
- Outlook is also improving, with Wall Street predicting a return to growth in Q4
- New iPhone 15, a recovery in China, new markets like India, a shift to higher-margin services and potential AI catalysts all to provide momentum as we approach the end of the fiscal year
- Annual earnings may fall from the record highs we saw in the last financial year, but earnings this year are still forecast to double this year compared to before the pandemic, and markets believe we will see another record set of earnings in the 2024 financial year
- Brokers see up to 15% potential upside from current levels, although Apple’s lofty valuation and all-time high share price could leave it vulnerable to profit-taking this week
- Apple is the largest member of the Nasdaq 100, so keep an eye on the index
Apple earnings date
Apple will release third quarter earnings after US markets close on Thursday August 3. A conference call will be held on the same day at 1400 PT (1700 ET).
Apple earnings forecast: Q3 consensus
Apple is expected to report 1.8% year-on-year decline in revenue to $81.5 billion while adjusted EPS is expected to rise by 0.3% to $1.20.
In terms of other key figures to look out for this quarter:
- iPhone sales are forecast to fall 2.2% from last year to $39.8 billion
- Mac sales are forecast to drop 13.9% to $6.4 billion
- iPad sales are forecast to decline 12.3% to $6.3 billion
- Services revenue is expected to rise 5.9% to $20.7 billion
Apple earnings preview
Apple’s results have been uninspiring so far this financial year considering revenue and earnings both declined in the first six months and forecasts for this quarter are not overly rousing either, with sales expected to decline for a third consecutive quarter while earnings are predicted to come in flat.
That puts it on course to underperform against its Big Tech rivals this earnings season and signals Apple is on the path to reporting its first annual decline in sales and profits in four years.
The main problem, which is not contained to Apple but has hit most hardware makers, is the drop-off in demand for electronic devices. Consumers splurged on technology during the pandemic, leading to a surge in sales that peaked last year, but this has since been unravelling and pressured further by the impact inflation and rising interest rates has had on consumer’s wallets.
And yet, against that challenging backdrop, Apple shares are currently lingering around fresh all-time highs, having become the first publicly-listed company to ever be given a $3 trillion valuation this year.
This can be partly explained by the fact that Apple’s flagship iPhone, while not immune to weaker demand, has proven far more resilient in the testing environment. While we have seen demand for tablets, computers, games consoles and other equipment suffer deep double-digit falls across the industry, Apple’s iPhone sales (which generate almost half of its total revenue!) have continued to grow. We also know that Apple has been hugely successfully in convincing consumers to abandon their Android. Its global market share of smartphone shipments has grown from 18% to 22% in just four years, mostly at the expense of smaller, less well-known brands, according to Counterpoint Research. Wall Street is anticipating a fall in iPhone sales this quarter, which is typically a weak one for Apple as it usually launches its new iPhone model in September, prompting consumers to wait before upgrading. Any surprise growth here would be welcomed as it would signal strong demand even late in the iPhone’s annual product cycle.
Ultimately, Apple is outperforming during a tough time for the market and that is being embraced. It has proven dependable over what has been a volatile few years for most, attracting the attention of those looking for future growth as well as others seeking reliability and stability. Plus, while earnings are likely to decline this financial year as that record performance we saw in the previous one unravels, earnings are still forecast to be twice as high this financial year compared to what we saw before the pandemic, while sales have grown almost 50%!
Plus, the outlook is improving as far as Wall Street is concerned. Analysts believe the fourth and final quarter of its financial year will be an inflection point, with revenue forecast to return to growth and the rise in earnings to accelerate.
A rebound in the current quarter, boosted by the introduction of the new iPhone 15 around September (assuming it sticks to its usual schedule), would position Apple to deliver another record performance in the 2024 financial year, driven by a recovery in demand for all of its devices. That, in turn, should help accelerate growth in demand for its services division that homes all of its digital tools such as the App Store, Apple Pay, AppleCare and Apple Music. A rebound in demand from China, which has proven disappointing since reopening the economy this year, will also help and Apple has new major markets like India to provide further momentum – which is all the more important as demand is faltering in more mature markets like North America. There is also potential new catalysts to come from any major developments in artificial intelligence, with Apple having kept its cards close to its chest thus far.
With all that in mind, brokers believe that there is significant further upside over the next 12 months even though Apple shares sit at all-time highs. Apple shares are currently trading roughly in-line with the average target price among the 42 brokers that cover the stock at $195, but in the last week alone we have seen four brokers up their view well above that, including Deutsche Bank to $210, TD Cowen and Piper Sandler to $220, and Wells Fargo to $225 – up to 15% above where Apple trades right now.
This financial year has been tough for Apple but the future appears bright and this is reflected in the fact it trades at a premium to the wider market. The stock currently trades at a forward price-to-earnings ratio of 30.3x, which is significantly above its five-year historical average of 23.0x. However, that sets the bar high ahead of the results and will require Apple to at least meet expectations to prevent a pullback. Apple is highly capable of delivering a beat, having impressed Wall Street in six out of the last eight quarters, but its valuation faces a test and the update will decide whether the current rally can keep up the momentum or falter.
Apple often beats expectations by flexing its bulging bank balance and conducting buybacks, although analysts think these will slow to less than $18.5 billion in the third quarter from around $19.5 billion in the first two.
Where next for AAPL stock?
The latest leg of the rally began five months ago and the share price has reliably followed the rising parallel channel ever since, signalling the strong uptrend remains firmly intact. We have seen shallower moves over the past couple of weeks as buyers and sellers are both happy with the current price ahead of the results, but the update will decide where it is headed next.
Apple’s premium valuation and all-time high share price suggests there is a risk we see some profit taking after the results, so it will need to impress to convince buyers that there is further room for the rally to go, but confidence remains high that Apple offers upside potential considering the share price has continued to edge upwards, albeit at a much slower pace, over the past week.
If that happens, then the question is whether the supportive trendline will provide support at around $194. A breakout below here could lead to a much sharper fall, potentially toward the 50-day moving average.
All three moving averages are trending higher and the RSI is in bullish territory to leave room for further upside potential. The stock has been stuck in the bottom-range of the channel for over three weeks, so a move above the $200 threshold is needed to move back into the upper chamber before it can eye the top trendline providing resistance.
Nasdaq 100 analysis: Where next?
Apple is the most valuable publicly-listed company in the world and the largest individual component of the Nasdaq 100, with a weighting of 11.6%. That means it has the greatest influence over the index and will impact how it performs when it releases results.
The Nasdaq 100 has also been following a parallel channel higher since March but is still some way from climbing back toward the previous highs we saw in late 2021. The index has held above the middle of the channel for over two months to suggest 15,600 should emerge as support if it comes under pressure, with the 71.6% retracement there to provide a safety net at 15,300.
All three moving averages are on the rise and the RSI suggests there is further upside potential. Surpassing the psychologic level of 16,000 is the next target before it can look to test the upper trendline of the channel.
Take advantage of extended hours trading
Apple will release earnings after markets close and most traders must wait until they reopen the before being able to trade. But by then, the news has already been digested and the instant reaction in share price has happened in after-hours trading. To react immediately, traders should take their positions in pre-and post-market sessions.
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