Apple (AAPL) is scheduled to report results for the company's fourth quarter of fiscal year 2020 after the market close on Thursday, October 29, with a conference call scheduled for 5:00 pm ET. What to watch for:
1. ANALYSTS SPLIT ON Q4 SALES: Last quarter, Apple beat consensus earnings and revenue expectations as CEO Tim Cook touted the "record June quarter" as being driven by double-digit growth in both Products and Services and growth in each of its geographic segments. Cook added that Apple's performance was "a testament to the important role our products play in our customers' lives and to Apple's relentless innovation."
Since then, Apple has unveiled the iPhone 12 and iPhone 12 mini with 5G technology, "ushering in a new era for the world's best smartphone." On the same day, Apple announced iPhone 12 Pro and iPhone 12 Pro Max with "advanced technologies that push the boundaries of innovation for users who want the most out of iPhone." Pre-orders for iPhone 12 and iPhone 12 Pro began on October 16 and both phones became available on October 23. The iPhone 12 mini and iPhone 12 Pro Max will be available for pre-order beginning November 6 and in stores beginning Friday, November 13.
On the day after the reveal, Jefferies analyst Kyle McNealy raised the firm's price target on Apple to $140 from $135 and kept a Buy rating on the shares, stating that the launch event had "a few modest positive surprises." One of the most important elements of the iPhone 12 launch from his perspective were the device promotions announced by AT&T (T) and Verizon (VZ), said McNealy at the time.
More recently, Wedbush analyst Daniel Ives said he believes Apple should post at least modest upside to the Street's roughly $64B sales estimate on the heels of stronger Services revenue and relatively healthy iPhone demand. The analyst also anticipates better than expected bottom-line results compared to Street expectations of 71c. For investors, the September quarter takes a back seat to the main event, which is around gauging the demand growth trajectory for iPhone 12 into the holiday quarter and the rest of 2021, he contends. Ives has an Outperform rating and $150 price target on Apple shares.
Meanwhile, Credit Suisse analyst Matthew Cabral said that the one to two month later-than-normal iPhone launch cadence skews typical seasonality and pushes revenue from Q3 to Q4, which doesn't look fully baked into Street estimates. That said, Cabral doesn't think a short-term timing shift is a big deal for the stock as the focus is squarely on 5G iPhone sell-through, particularly if management reinstates guidance heading into an above-seasonal December quarter. The analyst is bullish on 5G driving upgrade momentum over time, though remains more guarded on consumer uptake out of the gate given limited coverage/capacity around the world and the lack of a robust 5G apps ecosystem to provide a differentiated use case at this stage. Cabral has a Neutral rating and a price target of $106 on Apple shares.
2. UNSURE IF GUIDANCE UPCOMING: Morgan Stanley analyst Katy Huberty recently said in her preview of Apple's upcoming earnings report that while it is too early to call the iPhone 12 cycle, the initial data points are "trending positively." While Huberty sees the potential for sales to miss expectations given "aggressive consensus iPhone expectations" that don't fully account for a lack of new products in the quarter, she added that results ahead of a product cycle don't tend to influence investor sentiment. Huberty, who doesn't expect to have a full read on iPhone demand until sometime in December, doesn't "necessarily view the September quarter print as a catalyst," she added. Huberty keeps an Overweight rating and $136 price target on Apple.
On October 26, Deutsche Bank analyst Jeriel Ong said he expects a "solid" September quarter report from Apple, but thinks investors will overlook any recent strength and focus on the December quarter given the recent iPhone release. However, with only a week of new iPhone sales by the time earnings are reported, management may not feel comfortable issuing guidance, Ong told investors. Apple has not guided officially since January, and for the December quarter, the company typically has one and a half months of new iPhone sales data prior to guidance, a "luxury they don't have for this iPhone cycle." He keeps a Buy rating on Apple.
3. GOLDMAN STILL BEARISH: On October 14, the day after Apple showed off its newest iPhones, Goldman Sachs analyst Rod Hall repeated his Sell rating on Apple with an $80 price target, saying the iPhone event had a "few unexpected twists" but nothing material for forecasts. Apple increased the iPhone 12 price by $100, consistent with expectations, but then reduced the price of iPhone 12 Pros by $50, contrary to what was expected, Hall told investors. This, combined with the introduction of the iPhone 12 Mini, "effectively closes gaps in the middle" of Apple's iPhone pricing curve and reduces prices on the most expensive iPhones, according to the analyst. Hall believes the best feature adds for the new iPhones were Magsafe charging and increased durability due to Corning's (GLW) Ceramic Shield material as opposed to 5G. The analyst continues to believe expectations for Apple are "optimistic," he has said.
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