Apple’s Q3 Earnings Preview: Analysts Expect Decline, But Bullish Sentiment Persists

Apple, Inc. (NASDAQ:AAPL) is scheduled to report its fiscal-year third quarter on Thursday after the market closes.

Analysts, on average, expect the company to report earnings per share of $1.08 on revenue of $74 billion. This will mark a decline from the year-ago EPS of $1.20 and revenue of $82.96 billion. An Apple bull is confident that the company will at least hit Street expectations.

According to the Barrons, despite ongoing macro and supply-chain headwinds, there’s a chance Apple could still report better-than-expected results for its fiscal third quarter ended in June. However, things are likely to get tougher from here, given the growing pressures on the consumer economy.

That’s the view of Bernstein analyst Toni Sacconaghi, who on Monday inched up his expectations for Apple (ticker: AAPL) for the June quarter, citing better-than-expected supply and manufacturing conditions, as well as “healthy” demand in China. Sacconaghi boosts his June-quarter revenue forecast to $84 billion from $82.8 billion, while nudging up his earnings-per-share forecast to $1.19, from $1.17. Sacconaghi’s estimates are above the Street consensus forecast for revenue of $82.4 billion and profits of $1.15 a share, according to Yahoo! Finance. In reporting March quarter results, Apple had warned that supply constraints could reduce revenue in the quarter by $4 billion to $8 billion; Sacconaghi thinks the actual impact might be at the low end of the range or below. But he also notes that currency-rate headwinds are likely higher than Apple had forecast.

Looking further out, Sacconaghi worries that current fiscal 2023 estimates could prove to be too high. “Apple is consumer-centric, and is highly transactional, with less than 10% of its revenue and profits being recurring, meaning it could be vulnerable to a downturn,” said the analyst. 

Sacconaghi cautions that while Apple stock could continue to outperform the market through the expected September launch of iPhone 14, he adds that the risk/reward over the next six months to two years is “neutral to modestly negative. “We worry that growth…may slow as consumers are increasingly pressured by inflation and rising rates,” said Sacconaghi.

“iPhone’ units will likely show an upside relative to expectations in the June quarter, going by a clear uptick in demand around the key China region. Higher average selling price and overall upgrade activity on the iPhone 14 Pro may have helped the company override the choppy macro environment,” said Wedbush analyst Daniel Ives.

The analyst noted that ASPs were trending toward $900/$925 for the iPhones. “It’s unique that this late the iPhone cycle, with iPhone 15 around the corner this fall, Apple is seeing such strong iPhone 14 demand,” he said.

Ives said the Street will remain laser-focused on CEO Tim Cook’s comments on consumer demand globally and what they mean for the path forward. “We would expect relatively conservative September guidance as this is all about the drumroll to the main event with the anniversary iPhone 15 launch slated for the mid-September timeframe,” said the analyst

Ives sees Apple’s acceleration in Services business growth over the coming quarters to a double trajectory. The expectation is premised on another 100 million+ new iPhone users added to the Apple ecosystem over the past 18 months, improving attach rates and price increases. Increasing overall cloud storage plans, according to the analyst, also remains an upward trend for Apple’s Services business. Additionally, the overall FX headwinds have abated a bit, creating easier year-over-year comparisons into fiscal year 2024.

“We believe overall the Services business is worth $1.3 trillion to $1.4 trillion for Apple’s sum-of-the-parts valuation and remains an underappreciated asset by the Street with many naysayers still not believers in the “new Apple valuation” reset in motion,” said Ives. 

Produced in association with Benzinga

Edited by Eunice Anyango Oyule and Judy J. Rotich