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Apple (AAPL) is scheduled to report its fiscal Q3 earnings after the close this Thursday, Aug. 3. The stock has soared 48% this year, which has lifted its market cap above $3 trillion - and investors should keep a close eye on the upcoming earnings to gauge whether the Cupertino-based company can back up its bullish price action with an equally impressive financial performance.
Apple’s earnings arrive toward the end of the reporting season, and along with Amazon (AMZN), the company's results will wrap up this round of quarterly earnings for FAANG companies. The results have been a mixed bag so far, as Netflix (NFLX) disappointed markets with its Q2 earnings, while Meta Platforms (META) and Alphabet (GOOG) posted better-than-expected earnings.
Analysts Expect Apple’s Revenues to Fall in Q3
Ahead of the report, analysts expect Apple’s revenues to fall 1.6% in the quarter, which would mark the third consecutive quarter of revenue declines, and the steepest drop in its fiscal third-quarter revenues since 2016.
Consensus estimates call for EPS of $1.19 in the quarter, down slightly from last year's $1.20 per share.
During Apple’s earnings call, expect investors to look closely at the trajectory of iPhone sales – particularly the demand environment in China, where the economic rebound has largely disappointed. Management might also offer insights into demand for its products in India, which CEO Tim Cook described as a “hugely exciting market” and a “major focus” during the fiscal first-quarter earnings call earlier this year.
Notably, India became a top-five market for Apple iPhones during the June quarter, according to data from Counterpoint Research. Strong demand in India – which overtook China to become the world’s most populous country, and boasts of a growing and aspirational middle class – could help Apple beat the slowdown blues in some of its other major markets.
That said, China is simultaneously looking to support its sagging economic growth and has taken steps to revive consumption, so these demand-related concerns for Apple may well be suitably priced in at current levels.
Wall Street Stays Bullish on Apple Ahead of Earnings
Overwhelmingly, Wall Street analysts are bullish on Apple heading into its fiscal third-quarter earnings report.
Earlier this week, Piper Sandler analyst Harsh Kumar maintained his overweight rating on Apple, while raising the target price from $180 to $220. Like others, Kumar believes that concerns over iPhone demand in China are overblown, and expects strong sales in India to offset any slowdown in China.
Other firms are similarly optimistic. Baird analyst William Power, for instance, just raised the stock's target price from $180 to $204, and said he expects the iPhone maker to post solid earnings in the fiscal third quarter. Baird also underlined the fact that AAPL stock historically outperforms between August and mid-September – which is when the company usually releases its new iPhone every year.
Overall, Wall Street analysts rate Apple’s stock as a Strong Buy ahead of its earnings report, with not a single Sell rating out there:
Of the 29 analysts that cover AAPL, 19 rate it a Strong Buy, 3 a Moderate Buy, and 7 a Hold - even as its mean target price of $197.22 is only about 2% above current stock prices.
That said, given the monstrous tech rally in 2023, analyst action has mostly lagged behind these stocks' price movement, and tech companies including Meta and Alphabet have scored price-target increases after their recent earnings reports.
Finally, as for Apple's valuation, the stock trades at a forward price/earnings multiple of 32.6x - ahead of its historical averages, which stand at 27.2x over the last three years and 23.7x over the last five years.
Warren Buffett Loves Apple's Business
Outside the analyst space, there's one other high-profile endorsement worth noting: Warren Buffett loves Apple stock.
Currently, the iPhone maker is the single biggest holding for Berkshire Hathaway (BRK.B). Buffett did sell some Apple shares in 2020, but the “Oracle of Omaha” said during the 2021 shareholder meeting that the decision was “probably a mistake.”
The billionaire investor reiterated his optimism on the stock at this year’s annual meeting, describing Apple as “a better business than any we own."
AAPL Stock Forecast: Should You Buy or Sell?
Looking at the already stretched valuation multiples, I don’t believe there is scope for AAPL stock to run much higher from these levels – at least, not in the short term.
However, the stock still looks like a good buy for long-term investors. Apple is an iconic brand with appeal across the world, and 2 billion active installed devices. This vast user base is a captive market for Apple as it diversifies into multiple other industries - including financials, where it recently launched a savings account with 4.15% APY. The tech giant is also eyeing the healthcare industry, and as far back as 2019 Cook said that improving people’s health would be "Apple’s greatest contribution to mankind.”
These ventures - along with Apple's foray into augmented reality (AR) headsets, and further expansion into emerging markets - could prove to be net positives, though they'll likely take some time to yield results.
To sum it up, Apple's stock could experience some heightened volatility in the short term after its upcoming earnings release, as valuations appear somewhat stretched at current levels. However, beyond that imminent event risk, I believe AAPL offers reasonably good returns across market cycles in the long term, and remains a buy over longer time horizons.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , GOOG , META , BABA , BRK.B . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
