Apple is set to release its fiscal fourth-quarter earnings on Thursday 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 the fourth quarter of 2021?
After being the best performing FAANG stock for two consecutive years, Apple shares have sagged in 2021. With a year-to-date (or YTD) gain of only about 15%, Apple is the second-worst performing FAANG name of 2021. Alphabet leads the pack while Amazon is placed at the bottom based on YTD returns.
Third-quarter earnings season
Meanwhile, this week would be crucial not only for Apple but other FAANG names as well. Netflix had reported mixed earnings last week. This week, we have quarterly earnings from the other four FAANG names. Overall, almost a third of S&P 500 companies, spread across different sectors, report their earnings this week. So far, the earnings season has been good. However, the earnings this week might set the pace for the market’s price action in the coming weeks.
Apple fiscal fourth-quarter earnings estimates
Analysts polled by TIKR expect Apple to post revenues of $84.9 billion in the quarter, 31.3% higher than the corresponding period last year. While the revenue growth looks impressive, it is coming from a lower base as Apple’s revenues had increased only about 1% in the fourth quarter of the last fiscal year. The company had to delay the iPhone 12 launch last year amid the COVID-19 pandemic which took a toll on its sales in September.
What to watch in Apple’s earnings release?
Analysts expect Apple’s adjusted EPS to rise 69% to $1.24 in the fiscal fourth quarter. Meanwhile, markets would watch the commentary on iPhone shipments amid the chip shortage situation. The situation has not gotten much better. This coupled with global supply chain and logistics issues could take a toll on iPhone shipments. Also, markets would watch the commentary on the forward guidance. Apple had stopped providing the guidance last year amid the COVID-19 pandemic. Also, the management might provide more colour on the recent App store changes.
Wall Street looks mixed
Meanwhile, Wall Street analysts look mixed on the stock ahead of its earnings release. Morgan Stanley reiterated Apple stock as overweight last week. “Our F4Q21 and FY22 ests move higher (above consensus) on the back of positive quarter end checks, but we don’t see earnings as a meaningful catalyst given unresolved key debates including FY22 iPhone growth and impact of App Store changes,” it said in its note.
JPMorgan also reiterated the stock as overweight and said that it expects Apple’s earnings and iPhone shipments to beat analysts’ estimates.
Supply chain issues
However, some of the other analysts are apprehensive on the stock amid supply chain issues. Needham, for instance, lowered its estimates for Apple while maintaining its buy rating “We lower our iPhone 13 shipment estimates for calendar 4Q21 (ending Dec. 31, 2021) by 10mm units based on our channel checks and press reports citing chip shortages and ongoing supply chain issues,” it said in its note. While companies like AMD expect the chip shortage situation to get better in the second half of 2022, Intel expects the shortage to stretch into 2023.
According to the forecast estimates compiled by CNN Business, Apple has a median price target of $170, which is a premium of over 15% over current prices. Its highest price target of $198 is a premium of 33% over current prices, while its lowest price target of $90 is a 39% discount to the current share price.
Of the 43 analysts covering Apple, 32 have rated the shares as a buy or some equivalent while nine analysts have a hold rating. The remaining two analysts have a sell rating on the shares.
Apple is the largest holding of Berkshire Hathaway and chairman Warren Buffett regrets selling some of the shares over the last two years. The Oracle of Omaha sees Apple as a consumer products company and has also been supportive of its buybacks.
Apple shares still look like a good buy for the long term. The 5G supercycle is still in action which will help fuel iPhone sales. The Services business is another long-term value driver and Apple continues to grow the business. The shares trade at an NTM (next-12 months) PE multiple of around 27x which does not look unreasonable considering the rerating from a gadget maker to a services and software company.
In the long term, Apple’s rumoured forays into electric cars and autonomous driving will add value. Morgan Stanley analyst Katie Huberty sees electric vehicles and mobility as a big opportunity for Apple citing the massive market for mobility.
However, in the short term, the noise over supply chain issues could put pressure on the shares. Next week, we’ll get to know how much are the supply chain issues impacting iPhone sales. However, the short-term issues don’t mask the positive long-term forecast for Apple shares.
Apple shares were trading in pre markets today. The shares have a 52-week range of $107.32-$157.26.
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