Earnings season will reach a peak of sorts today, when Apple (NASDAQ:AAPL) will report its fiscal third quarter report (June quarter) after the closing bell.
Ahead of the print, J.P. Morgan analyst Samik Chatterjee thinks it is time to start viewing Apple in a new light. Rather than seeing the tech giant as a product cycle company, it should be seen as a ‘resilient earnings compounder.’
“Apple’s diversified revenue drivers within Hardware, as well as the natural diversification of the replacement cycle for hardware product on account of a ~2 bn installed base of devices has moved the company incrementally away from being dependent on a product cycle relative to iPhones or any other hardware,” the analyst opined.
Moreover, the Services segment has grown significantly over time and is now well diversified in terms of its drivers, allowing it to achieve double-digit growth (excluding currency impact) even during challenging economic times. This “inherent diversification” positions the company next to other “’earnings compounders’ with resilient drivers.”
It also makes it easier to justify the premium multiple the stock has been trading at for the last six months, one which it is likely now to hold on to.
In fact, given the fact Apple is “well positioned to drive higher confidence from the upcoming earnings print as an ‘earnings compounder’ that continues to drive resilient performance,” Chatterjee thinks a new price target is due.
As for what to look out for in the report, Chatterjee expects the major highlight will be the pivot back to revenue growth on a year-over-year basis in F4Q23 (September quarter), boosted by “typical seasonality” in the majority of the business’ segments but with an additional kick from “moderating currency and improving Services growth rates as advertising rebounds.”
“The return to growth will mark Apple cycling past the most uncertain macro backdrop with resilient revenue and earnings, and well positioned to drive robust growth in a normal macro,” the analyst said.
Numbers-wise, for the June quarter, Chatterjee is expecting revenues of $81.9 billion and EPS of $1.23, both “modestly ahead” of guidance. For the September quarter, he is calling for revenue of $91.9 billion, above consensus at $90.5 billion.
What does this all mean for investors? Chatterjee rates Apple shares an Overweight (i.e., Buy), while lifting his price target from $190 to $235. The new figure suggests the shares have room for ~23% growth by the end of 2024. (To watch Chatterjee’s track record, click here)
Overall, most analysts are backing Apple’s continued success. The stock claims a Strong Buy consensus rating, based on 24 Buys vs. 7 Holds. However, the upside appears capped as the $203.64 average target makes room for just modest upside of 6.5% in the year ahead. (See Apple stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
