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Today, both Amazon (AMZN) and Apple (AAPL) will release their quarterly earnings after the closing bell. While this week - which is the busiest of this earnings season - started on a sobering note with Microsoft (MSFT) failing to impress markets, tech stocks have since rebounded. The sector is looking strong today, too, after Meta Platforms (META) reported better-than-expected Q2 numbers. In this article, we’ll discuss what analysts are expecting from Apple's fiscal Q3 earnings, and analyze whether it makes sense to buy the stock ahead of the report.
Apple’s Earnings Preview
Analysts expect Apple to post revenues of $84.4 billion in the June quarter, a YoY rise of 3.2%. While Apple has stopped providing quantitative revenue guidance since 2020, during the previous earnings call, the management forecasted “low single-digit” revenue growth for the quarter.
Consensus estimates call for a 6.4% rise in Apple’s earnings per share (EPS) for the quarter. The iPhone maker has been bogged down by tepid topline and bottom-line growth, and its sales fell YoY in the last fiscal year.
Key Metrics to Watch in Apple’s Fiscal Q3 Earnings
Along with the headline metrics, I would watch for the following during Apple’s upcoming earnings call:
- Guidance for the Current Quarter: Apple is expected to launch the next iPhone in September, going by the usual convention. Analysts see the iPhone 16, set to be loaded with “Apple Intelligence” features, as a key driver of Apple's growth. Assuming the company provides at least some directionality, the guidance for the September quarter will help gauge the demand for the upcoming model.
- Commentary on China Business: According to market research firm Canalys, iPhone shipments fell 6.7% in China in the second quarter, even as the overall market grew 10%. Due to the divergence, Apple fell to the sixth rank in the Chinese smartphone market, as the Cupertino-based company continues to battle a resurgent Huawei, which is gaining market share at Apple's expense. During the earnings call, it should be worthwhile to watch Apple management’s comments on the Chinese business, and how it plans to gain market share in that market.
- Geopolitical Tensions: Donald Trump has vowed to increase tariffs on China even further if he is elected as the U.S. president. Apple is one of the most exposed to China among leading U.S. companies, as apart from being a major market, the country is also its manufacturing hub. During the earnings call, Apple might face questions on whether it has built a contingency plan in case China is slapped with even higher tariffs.
AAPL Stock Forecast
Apple has had a love-hate relationship with sell-side analysts this year. Three brokerages downgraded AAPL stock in the first two weeks of January alone, which was quite a rarity for the company.
Since then, however, analyst sentiment has slowly been turning around, particularly after the Worldwide Developer Conference (WWDC) in June where Apple unveiled its artificial intelligence (AI) initiatives. Brokerages have been turning incrementally more bullish on AAPL heading into the fiscal Q3 confessional, and TD Cowen, Raymond James, Baird, and JPMorgan Chase are some of the firms that have raised the stock’s target price in recent days.
Apple is now rated as either a “Strong Buy” or “Moderate Buy” by almost 77% of analysts covering the stock, while the corresponding number 2 months back was right around 65%. The stock has a mean target price of $231.28, which is 4.1% higher than yesterday’s closing prices.
Should You Buy Apple Stock Ahead of the Earnings Report?
While it is perilous to predict the post-earnings price action, I find Apple stock a buy ahead of the report. The tech sell-off seems to have subsided for now, and investors are again warming up to tech stocks.
While Apple’s valuations might appear a bit stretched - the stock trades at a next 12-month (NTM) price-to-earnings (PE) multiple of nearly 32x, which is higher than the historical averages - the premiums are not entirely unjustified.
Apple seems to have finally seen a rerating, as markets start to appreciate it as an AI play. AI-enabled gadgets could help boost both Apple’s topline as well as its bottom line, as they are expected to be priced higher than previous models. Notably, Apple has seen such re-ratings in the past, too, as the company successfully established itself as a software powerhouse rather than a mere gadget maker.
The baton lies with Apple now, though, and the company needs to convince markets that its Apple Intelligence can be the money spinner that bulls expect it to be.
On the date of publication, Mohit Oberoi had a position in: AAPL , AMZN , MSFT , META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
