Investors want to know whether it is still worth it to bite into Apple (AAPL). Despite successful new product launches, including its pivotal iPhone 13, Apple hasn’t escaped the market’s wrath and uncertainty related to global growth slowdown, compounded by rising inflation and interest rates.
For Apple, supply chain disruptions and lockdowns in China, its second-largest market, have added to numerous headwinds. While Apple stock has held relatively well during the selloff (up 11% in six months), shares have fallen 10% from their 52-week high and are down 6% year to date. Is now a good time to buy? That answer will be more clear when the company reports second quarter fiscal 2022 earnings results after the closing bell Thursday.
In a research note to investors last week, analyst Brian White of Moness Crespi said, "troubling inflationary forces and the economic impact from the conflict in Ukraine" will result in consumers being more selective in their purchases. Although he reiterated a Buy rating on the stock with a $199 price target, White was cautious, citing declining work-from-home trends, which was once the main driver of the increased demand for laptops, tablets and the accessories that Apple sells, noting that "the extent of the unwind is unclear."
Meanwhile, Morgan Stanley analyst Katy Huberty, who has an Overweight rating on Apple with a $210 price target, was more optimistic. ”We expect Apple to post upside to March quarter consensus revenue estimates on the back of iPhone 13 and Mac strength, which we believe more than offset relative weakness in iPad and the App Store in the quarter.” Nevertheless, investors are hoping for more clarity and conviction on the bullish thesis on Thursday.
In the three months that ended March, Wall Street expect the Cupertino, Calif.-based tech giant to earn $1.43 per share on revenue of $94.02 billion. This compares to the year-ago quarter when earnings came to $1.40 per share on revenue of $89.58 billion. For the full year, ending September, earnings are expected to rise 10% year over year to $6.17 per share, while full-year revenue of $396.05 billion will rise 8.3% year over year.
The market is re-assessing tech valuations and Apple has seemingly gotten caught in the crosshairs. The Street forecasted revenue for the just-ended quarter to grow just 5%, while the subsequent quarters may struggle due to the chip shortage. The downbeat projected fiscal year-over-year growth for EPS and revenue, and the lack of explosive growth, is one reason Apple stock has struggled. It also doesn’t help that interest rates are expected to rise, while inflation is also running hot, which may pressure iPhone sales.
For the long term, Apple’s revenue growth capability is not in question. Apple has navigated through these headwinds before. This, however, highlights the importance of Apple’s Services business, which now accounts for some 30% of total revenue. In the first quarter, Apple earned $2.10 per share on $123.95 billion in revenue, beating consensus of $1.89 per share on $118.4 billion in revenue. The beat was driven by the strength in the iPhone, which generated $71.6 billion in during the quarter.
The Services segment posted revenue of $19.5 billion, up from $15.7 billion in the year-ago period. But it wasn’t all good news. Supply chain shortages impacted iPad sales, which fell 14%. Investors on Thursday will focus on the company’s guidance for clues suggesting improvements in supply chains as well as Apple’s new devices, namely rumored AR glasses related to the metaverse.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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