History shows that over the past decade whenever Apple (NASDAQ:AAPL) has raised September quarter guidance, the stock tends to outperform the S&P 500 by 10 points, on average, over the following month.
Well, Apple investors, get ready for a scorching August, if Morgan Stanley’s Erik Woodring’s prognosis is anything to go by. With the tech giant readying to report fiscal third quarter earnings (June quarter) next Thursday (August 3), the analyst thinks investors should prepare for such a scenario.
“We expect Apple to post an in-line June quarter but guide September quarter revenue and gross margin materially higher than current Consensus estimates, reflecting stable iPhone builds, seasonal Mac strength, low-teens Services growth, and continued secular and cyclical margin tailwinds, Woodring said. “Importantly, this creates a setup where we expect positive estimates revisions post-earnings, after 5 consecutive quarters of Apple guiding forward quarter estimates below Consensus.”
Most notable of all will be the guide for gross margins, where Woodring anticipates sequential expansion and a new quarterly record and Services growth, expected to display a “clear acceleration” from June, and as such, Woodring’s estimates are 110bps and ~4pts, respectively, above Wall Street’s forecast.
Numbers wise, Woodring expects September quarter revenue of $93.4 billion and EPS of $1.49. These figures are 4% and 9% higher than the consensus estimates of $90.3 billion and $1.36, respectively.
Back to the June quarter, Woodring’s estimates are roughly the same as the Street’s, calling for revenues of $81.3 billion and EPS of $1.17. Specific items Woodring will be looking out for the most apart from the revenue haul are Services revenue growth (Woodring expects an 8.8% year-over-year increase), and gross margin (44.3% compared to Apple’s guide of 44.0-44.5%).
All told, Woodring sees next Thursday’s earnings as a “positive stock catalyst that can help Apple shares re-rate towards our unchanged $220 price target.” That suggests an upside of 14% from current levels. Woodring’s rating stays an Overweight (i.e., Buy). (To watch Woodring’s track record, click here)
Turning now to the rest of the Street, where based on an additional 23 Buys and 7 Holds, the analyst consensus rates the stock a Strong Buy. However, considering the already abundant year-to-date haul (up by ~50%) going by the $198.19 average target, the stock is expected to stay rangebound for the foreseeable future. (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.
