Most of the Big Tech contingent reported March quarter earnings last week with one notable absence: Apple (NASDAQ:AAPL) – the biggest Big Tech of them all – will deliver its fiscal second quarter statement once the the market action stops on Thursday (May 4th).
Looking ahead to the print, Morgan Stanley analyst Erik Woodring sees little surprises in store for the quarter, anticipating $91.9 billion in revenue and EPS of $1.41, estimates which sit 1-2% below consensus. The only notable last-minute changes are a modification to iPhone revenue – pushed 2% higher to $50.3 billion, countered by a 10% cut to Mac revenue, down to $6.3 billion, and a Services revenue estimate drop of 1% to $20.9 billion.
However, it is for the June quarter, where Woodring’s take differs substantially from the Street’s forecast. For FQ3, Woodring anticipates $80 billion in revenue compared to consensus at $85 billion. To Woodring, Street iPhone forecasts in the June quarter look “too aggressive relative to the more tepid demand environment globally.”
That said, on the other hand, Woodring thinks the Street is being conservative on gross margins, calling for 44.1% vs. the consensus estimate of 43.7% with the Street not properly factoring in an “incrementally more favorable FX.” According to Woodring’s talks with clients, the soft revenue guide is actually “well-known and expected.” So, should Apple come good on the consensus gross and operating margins front, that could counter an anticipated revenue miss and will not necessarily be a “negative catalyst.”
In fact, with 4 pending catalysts on the horizon, Woodring thinks investors could do with looking beyond the June quarter metrics completely.
What are these catalysts, then? “1) the anticipated AR/VR headset launch at WWDC in June,2) reaccelerating Services growth in the June quarter,3) easing FX compares that should help to drive gross margins to new record highs each quarter into early CY24, and 4) reaccelerating iPhone shipment and revenue growth in FY24.”
Add into the mix the possible launch of a hardware subscription program, and the catalysts are why Woodring calls Apple a Top Pick and sticks with an Overweight (i.e., Buy) rating. Woodring also maintains a $180 price target, suggesting the shares will see modest growth of 6% over the coming months. (To watch Woodring’s track record, click here)
Should the shares show any post-earnings “weakness,” Woodring says investors should scoop them up.
Most on the Street are also in favor of scooping up AAPL shares. The stock’s Strong Buy consensus rating is based on 23 Buys, 4 Holds and 1 Sell. However, having already delivered year-to-date gains of 31%, the $174.85 average target leaves room for just a 3% uptick from current levels. (See Apple stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
