Apple (AAPL) is scheduled to report results for the company's first quarter of fiscal year 2020 after the market close on Tuesday, January 28, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. CURRENT IPHONE: Apple shares closed at $153.99 on January 28, 2019, the day before the company's report of its first quarter results of fiscal year 2019. Apple shares are trading at just about $311 per share on Monday afternoon, having more than doubled on the day before its report for the first quarter of the current fiscal year. During that time, and over the last three months, analysts on Wall Street have become progressively more bullish.
On January 24, Wedbush analyst Daniel Ives maintained an Outperform rating on Apple, and raised his price target on shares to $400 from $350, saying he believes Apple is "is poised to handily beat Street expectations in light of a strong holiday season with pent up demand catalyzing iPhone 11 purchases across the board." The analyst's recent Asia checks looked robust for iPhone 11 units, and he has seen "jaw dropping" AirPods momentum. Ives called Apple a "must own" ahead of the transformational 5G super cycle over the next 12-18 months, adding that the company was his favorite 5G play.
On January 17, Morgan Stanley analyst Katy Huberty raised her estimates for Apple to reflect smartphone replacement cycles peaking and the upcoming 5G upgrade cycle. She believes longer battery life and upcoming 5G technology which will enable new functionality, while aggressive trade-in offers that subsidize upgrades for existing iPhone owners suggest replacement cycles may begin to shrink, Huberty told investors. She has increased her FY21 iPhone unit estimate to 215M and increased her price target on Apple shares to $368 from $296 while keeping an Overweight rating on the iPhone maker's stock.
For the December-end quarter, the current total revenue estimate is about $88.43B. With its last report, the company said it sees first quarter revenue between $85.5B-$89.5B and gross margin for the quarter between 37.5% and 38.5%.
The sell-side consensus estimate for iPhone revenue this quarter is $51.1B, according to KeyBanc analyst Andy Hargreaves. In last year's first quarter, Apple reported iPhone revenue of $ 51.98B. In its fourth quarter report, Apple reported revenue from iPhone of of $33.36B, down from $36.76B in the same quarter of last year.
The expectation for Apple's Q2 revenue, is currently $62.33B, with estimates ranging from a low end of $57B to a high end of nearly $66B, according to Bloomberg.
2. EYE ON FUTURE IPHONES: On January 21, Bloomberg's Debby Wu and Mark Gurman reported, citing people familiar with the matter, that Apple suppliers intend to start assembling a new low-cost iPhone in February and that the company is expected to officially reveal the new phone as early as March.
On January 17, Raymond James analyst Chris Caso told investors in a research note that he believes Apple has made a design change with respect to the 5G mmWave module for iPhone 12, with his firm's latest checks suggesting Apple decided to move from a turnkey Qualcomm (QCOM) solution to a module that Apple will outsource on its own, still however using Qualcomm components. Caso said he believes this change will significantly reduce the bill-of-materials cost for mmWave to ~$20 from about $50 with the Qualcomm turnkey solutiom, which will greatly reduce the entry barrier for mmWave phones and provide Apple with a competitive advantage due to its comparatively lower cost for that technology.
3. SERVICES: In Q4, Apple reported that its Services revenue grew to $12.51B from $10.6B in the same period of the prior year. For Q1, the sell-side consensus forecast is for Services revenue of $13.5B, KeyBanc's Hargreaves. In Q1 of last year, Apple reported Services revenue of $10.88B.
4. DEUTSCHE, JPMORGAN URGE CAUTION: On Monday morning, JPMorgan analyst Samik Chatterjee raised his price target for Apple to $300 from $296 ahead of Tuesday's fiscal Q1 earnings report. While the analyst expects a "strong quarter" in relation to revenues hitting the high-end of guidance and earnings exceeding consensus, with Apple shares trading at 19.7 times price-to-earnings on his 2021 estimates, he sees a "high bar to clear relative to investor expectations heading into the print." The re-rating of Apple shares has been justified given the transformation towards Services, says Chatterjee, who expects further re-rating with increasing mix of profits from Services. However, his conversations with investors indicate that the current valuation prices in "material earnings upside." Chatterjee continues to recommend shares of Apple for long-term shareholders. He would just "be wary of the high bar of investor expectations" into the Q1 results.
Expressing even more caution, Deutsche Bank analyst Jeriel Ong raised Apple's price target to $290 from $280 while maintaining a Hold rating on the shares. The analyst increased his estimates as he sees iPhone unit demand better than present Street expectations. However, the significant intra-quarter stock price move is unlikely to be matched commensurately by the improved fundamentals, said Ong, who expects Apple to normalize at a higher valuation. Such a setup bodes poorly for investors who consider what to do with their Apple holdings from present levels, Ong said. The analyst believes the recent "sharp valuation expansion" creates a setup where risks remain balanced with the potential reward.
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