Apple (AAPL) is scheduled to report results for the company's third quarter of fiscal year 2021 after the market close on Tuesday, July 27, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. 'ALMOST THE PERFECT QUARTER': Last quarter, Apple beat consensus earnings and revenue expectations, after which Citi analyst Jim Suva raised the firm's price target on Apple to $170 from $150 and kept a Buy rating on the shares. The company's March quarter beat on every metric including iPhone, services, Macs, wearables, gross margins and earnings, Suva told investors. It was "almost the perfect quarter" except for two items, which are no explicit guidance for the June quarter and commentary during the conference call that the June quarter will be seasonally weaker than normal due to the March quarter strength of iPhone and lingering supply chain issues of $3B-$4B, said the analyst at that time.
More recently, Suva raised estimates on Apple as his channel checks continue to suggest "strong" end-market demand for Apple in PCs, smartphones and wearables, coupled with low sequential growth in Services. Consensus estimates are too low, even after accounting for the $3B-$4B impact from lower chip availability during the June quarter, which has affected the iPad rollout during the quarter, Suva told investors. Apple shares have underperformed the broader markets year-to-date, but this should change ahead of the new iPhone launch in September, said Suva, who views Apple's shares as attractive and keeps a Buy rating on the name with a $170 price target.
Meanwhile, on the day after Apple's last report, Goldman Sachs analyst Rod Hall upgraded the stock to Neutral from Sell with a price target of $130, up from $83. Apple posted another "large beat" and implied a guidance raise relative to June quarter revenue expectations, Hall told investors. The analyst said his original view that the iPhone cycle would disappoint in the midst of Covid "was clearly wrong." Not only has Apple done better than expected on iPhone during the cycle but Mac and iPad have also materially outperformed forecasts, added Hall.
Wedbush analyst Daniel Ives wrote on July 21 that he expects "more good news" and "another beat across the board" from Apple. The analyst notes that the Street is looking for $73 billion and $1.00 of earnings, both of which look likely conservative given the underlying iPhone strength he saw during the quarter, including a particular uptick in demand out of China. While the chip shortage was an overhang for Apple during the quarter, Ives believes the iPhone and Services strength in the quarter neutralized any short-term weakness that the Street was anticipating three months ago. Based on his recent Asia supply chain checks, he thinks that iPhone 13 demand will be similar/slightly stronger than iPhone 12 out of the gates, which speaks to his thesis that this elongated "supercycle" will continue for Cupertino well into 2022. Ives has an Outperform rating and a price target of $185 on the shares.
Current consensus EPS and revenue forecasts for Apple's June quarter stand at $1.00 and $72.93B, respectively, according to data provided by Refinitiv. That $1.00 EPS estimate for the fiscal third quarter is up from where it stood 90 days ago at 82c per share, according to Refinitiv.
2. WWDC: On June 7, at its WWDC keynote event, Apple provided details on operating system updates, including iOS 15, iPadOS 15, and macOS Monterey.
The next day, Credit Suisse analyst Matthew Cabral said that Apple's 2021 Worldwide Developers Conference was "largely as expected" and characterized the announcements as more incremental in nature, though unique features enabled by Apple's tightly integrated hardware, software, and services stack remain front-and-center. Among the key themes, the analyst highlighted the ongoing commitment to privacy and protecting user data; on-device processing as a key advantage over Services peers, as Apple looks to embed AI/ML-driven curation and customization locally; and the ongoing Mac/iPad convergence, accelerated by the shift to ARM to unify the architecture.
Meanwhile, Morgan Stanley analyst Katy Huberty said some of the highlights of Apple's WWDC 2021 included new work and learn from home enablers, advanced AI/ML capabilities, a strengthening of Apple's health platform, and new "privacy enablers." Following the software-focused keynote, Huberty argued that new software updates, combined with new hardware launches later this summer and fall, will allow Apple to see a third consecutive year of growth in FY22. She maintains an Overweight rating on Apple shares.
Piper Sandler analyst Harsh Kumar told investors that Apple introduced a "series of small but interesting user-friendly changes across its product families that keep pushing the performance bar higher." Some standouts include making FaceTime more user and corporate friendly, text recognition from pictures, and pushing UWB beyond cars into homes, hotels, and offices, said the analyst, who has an Overweight rating on Apple shares.
3. UPCOMING IPHONES: On July 14, Bloomberg's Debby Wu and Mark Gurman reported that Apple has asked suppliers to build up to 90M next-generation iPhones this year, up 20% year over year. According to people with knowledge of the matter, this year's update will be more incremental than the iPhone 12, emphasizing processor, camera and display improvements.
The same day, JPMorgan analyst Samik Chatterjee raised Apple's price target to $175 and $170 and added the shares to the firm's Analyst Focus List as a "Growth idea." He keeps an Overweight rating on the name. Data points supporting a favorable view on the shares "continue to trickle in," including an upside revision to iPhone 12 build estimates by JPMorgan's Apple Supply Chain analyst as well as continued strength in sales of Mac devices, Chatterjee told investors. The analyst believes Apple shares are "positioned for upside," led by upward revisions to iPhone 12 volumes and share gains in key geographies, including China, as well as upside to investor expectations for the upcoming iPhone 13 for which he says investor expectations remain low.
On July 21, Nikkei Asia's Lauly Li and Cheng Ting-Fang reported, citing sources familiar with the matter, that all of Apple's iPhones released in 2022 will have 5G capabilities and the company will not unveil any new 4G models next year. The company will instead start selling a version of its iPhone SE that is compatible with 5G, the authors said, noting that Apple will also not introduce an updated edition of the iPhone Mini. In addition, the tech giant is preparing updated versions of other products, including MacBook Pros and a new version of AirPods, for release in the second half of this year, the authors reported.
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