Apple (NASDAQ:AAPL) delivered better-than-expected Q4 earnings. However, shares of the iPhone maker are down about 3.38% in Thursday’s after-hours of trading as its Holiday sales outlook disappointed investors. Nonetheless, Goldman Sachs analyst Mike Ng believes investors shouldn’t fret over the lower-than-expected December quarter sales guidance, as the ongoing strength in the Services segment and benefits from a higher iPhone price/mix will support its growth.
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The analyst highlighted that the lower-than-expected Q1 guidance is due to the timing of the product launches. The analyst believes that Apple will launch new models of iPads late in 2024, which may impact Q1 sales. Meanwhile, tough year-over-year comparisons will weigh on the sales of wearables and accessories. Mike Ng reiterated a Buy on Apple stock and increased the price target to $227 from $213.
Further, investors should note that Apple’s December quarter sales are projected to stay flat despite having one less week than the prior year. Notably, the December quarter this year has 13 weeks, whereas the prior-year quarter had 14 weeks. The one extra week “added approximately 7 percentage points to the quarter’s total revenue,” said Luca Maestri, Apple’s CFO.
With this backdrop, let’s delve into Apple’s December quarter outlook.
Apple: Q1 Outlook
Apple expects its top line to stay flat compared to the prior year in Q1. This implies that the company could deliver total net sales of about $117.2 billion in the first quarter of Fiscal 2024 (ending December 31). The guidance fell significantly short of analysts’ expectations of $123.1 billion.
Apple anticipates iPhone and Mac revenues to improve in Q1. However, weakness in the iPad, and Wearables, Home and Accessories segments will remain a drag.
Nonetheless, Apple remains upbeat about Services revenue. The company projects its average revenue per week to grow at a similar strong double-digit rate as it did during the September quarter in the Services segment. Further, the company expects its gross margins to be between 45% and 46%, compared to 43% in the prior year quarter.
Is Apple Stock Expected to Rise?
Apple stock is expected to rise by 14.52% based on Wall Street analysts’ average 12-month price target of $203.35. Meanwhile, analysts remain cautiously optimistic about Apple stock due to the weakness in the iPad and Wearables, Home and Accessories segments. Overall, it has received 22 Buys and nine Holds for a Moderate Buy consensus rating.
It’s worth highlighting that most of the price targets and recommendations for AAPL stock were issued before the Q4 financial result announcement. Consequently, investors can expect a potential revision in the price targets.
Bottom Line
Apple’s top and bottom lines are expected to benefit from the solid momentum in the Services segment, the growing installed base of active devices, and increased sales of higher-priced iPhones as supply concerns ease. However, the near-term pressure in the iPad and Wearables division could pose challenges in the short term, as evidenced by the analysts’ Moderate Buy consensus rating.
