Apple is set to release its fiscal second-quarter earnings today after the US markets close. What are analysts expecting from the earnings of the world’s largest company and what’s the forecast for the shares in 2021?
Apple second-quarter earnings estimates
Apple is expected to post revenues of $77.3 billion in the first quarter of 2021—a year-over-year rise of 32.5%. However, the revenues are expected to fall sharply from the $111.4 billion that it reported in the previous quarter. That said, the fiscal second quarter is seasonally weak for the company. Also, for this year, we have an unfavourable comparison as its fiscal first-quarter sales rose to a record high on the back of the delayed iPhone 12 launch.
Analysts expect Apple to post an EPS of $0.99 in the quarter, which is 55% higher than it posted in the corresponding quarter in 2020. In the previous quarter, Apple shares had fallen despite posting record revenues and better-than-expected earnings. Markets were disappointed as the iPhone maker did not provide forward guidance during the fiscal first-quarter earnings release.
What to watch in Apple’s earnings release?
“Given the continued uncertainty around the world in the near term, we will not be guiding to a specific revenue range,” CFO Luca Maestri had said during the company’s earnings call. In the fiscal second-quarter earnings call, markets will be listening closely to the management’s commentary on the forward guidance given the improving pandemic situation in many markets. Also, the company might offer insights into whether the global chip shortage is taking a toll on its production and supply chain.
Divergence in FAANG shares
Apple shares outperformed the markets as well as FAANG shares (a term used to represent Facebook, Apple, Amazon, Netflix, and Google-parent Alphabet) in both 2019 and 2020. However, the shares are trading flat for the year and are up barely 1.5%.
Gene Munster of Loup Ventures, who had correctly predicted Apple’s market capitalisation rising to $2 trillion, expected Apple to be the best-performing FAANG share in 2021. However, the prediction does not seem to be holding true, at least in the first four months of the year.
To be sure, the FAANG pack has been under pressure this year and we’ve seen a divergence in performance amid the tectonic shift from growth to value stocks. Among the FAANGs, Alphabet is the best performer in 2021 with returns of 32.8%, while Facebook is a distant second with 11% returns. Amazon shares are up 4.7% while Netflix is down 5.6%. The shares had fallen hard after it reported tepid subscriber growth for the first quarter of 2021.
Apple share price prediction 2021
According to the forecast estimates compiled by CNN Business, Apple has a median price target of $155, which is a premium of over 15% over current prices. Its highest price target of $175 is a premium of almost 30% over current prices, while its lowest price target of $83 is a 38% discount to the current share price.
Of the 40 analysts covering Apple, 28 have rated the shares as a buy or some equivalent while nine analysts have a hold rating. The remaining three analysts have a sell rating on the shares.
Earlier this week, JPMorgan Chase and Credit Suisse set Apple’s target price at $150 and $140 respectively. Morgan Stanley, which has an overweight rating on the shares also set its target price to $158. While the brokerage is positive on the shares and raised its forecast for Apple’s services revenues, it lowered its price target from $164.
Gene Munster on Apple
Munster expects Apple’s market capitalisation to rise to $3 trillion. If the company were to achieve that feat, it would become the first company globally to have a market capitalisation of $3 trillion. Currently, Apple is the only company with a market capitalisation in excess of $2 trillion.
However, Amazon and Microsoft are strong contenders for the coveted spot. Over the long term, some bullish analysts, including Munster and Cathie Wood’s ARK Invest, expect Tesla’s market capitalisation to also rise above $2 trillion, with ARK forecasting Tesla shares at $3,000 by 2025.
Berkshire Hathaway’s largest holding
Apple is the largest holding of Berkshire Hathaway, with the Warren Buffett-led conglomerate holds a 5.4% stake in the company. While Buffett hasn’t bought any Apple shares since the third quarter of 2019 and has been gradually trimming the stake, the holding has not come down due to Apple’s buybacks that lowers its outstanding share count.
Why Apple’s long-term forecast looks positive
Meanwhile, Apple’s short-term volatility notwithstanding, the company’s long-term forecast looks positive. In the medium term, the 5G super-cycle would lead to higher revenues and earnings for Apple. Also, as the share of services revenues in the total sales continues to rise for Apple, it would help it support its valuation multiples which have expanded over the last year.
Electric vehicle play
In the long term, Apple could also be a play on electric vehicles. While the company hasn’t been able to zero down on a partner for its electric car projects yet, it is rumoured to start producing and delivering electric cars in the second half of this decade.
Apple’s entry into the electric cars sector would intensify the competition in the electric vehicle industry and Munster sees it as the biggest risk for Tesla.
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