Stock Analysis & Ideas

Could Macro Events Have Bitten into Apple’s Q1?

The interest rate hike speculations have kept technology stocks most susceptible to sell-offs in the past few weeks. Being one of the leading tech companies, Apple (NASDAQ: AAPL) has also borne the brunt of these sell-offs, to some extent. In their flight, investors of growth stocks have eaten off 6.71% of the AAPL stock price since the beginning of January.

Q1: The Strengths and Weaknesses

Nonetheless, ahead of its 1QF22 earnings results that are awaited on January 27, Monness Crespi Hardt analyst Brian White believes that Apple can be a good bet, despite the tense environment of the economy. “During this crisis, we believe Apple has enhanced its value proposition in the eyes of the world by introducing new innovations, supporting a more digital lifestyle, and attracting new users to Planet Apple,” he weighed in.

The company did not issue official guidance for 1QF22, and White expects Apple to beat his revenue projection of $118.68 (6% year-over-year growth), and EPS projection of $1.93.

White, however, sees a few setbacks looming over the quarter-to-be reported. He observes that his 1Q:FY22 revenue forecast reflects a 42% sequential growth, which is much lower than the 54% average sequential growth that was observed in the December quarters over the past four years. This means significant deceleration in revenue growth.

Moreover, White believes that revenues from iPhone sales will record year-over-year growth, but sharply lower at around 2%, compared to 47% in the prior year Q4. “Work-from-home has driven strong demand for PCs and tablets; however, we expect this phenomenon to wane in FY:22,” said White, justifying his revenue prediction.

Coming to revenues from the Mac series of products, an 8% year-over-year growth is expected. However, White looks at a 3% decline in iPad sales for 1QF22.

FY22 Looks Positive, But Not Quite

For the full-year fiscal 2022, White expects a significant deceleration in revenue growth, at only 8%. This is more because of outside factors than due to any fundamental issue. Apple’s fiscal 2021 experienced a cocktail of favorable factors, like benefiting from the work-from-home wave, massive demand for digital content during lockdowns, Huawei’s fall from grace, and a delayed iPhone 12 upgrade cycle resulting in additional pent-up demand. These factors led to a 33% growth in FY21 revenues, against 6% growth in the preceding fiscal year.

“In our view, growth of this magnitude is unsustainable and the impact of a post-lockdown hangover unclear,” opined White, explaining his reservations about the company’s performance for the year.

However, the strong services business that Apple has built over the years has given the market confidence about its long-term prospects. Also, Apple has not let the noise deter it from focusing on portfolio expansion and technological innovations.

“Finally, this COVID-19 crisis has created havoc across multiple industries, resulting in an uncertain future, creating a greater allure for large, well-managed, tech companies with strong balance sheets that benefit from digital transformation, such as Apple,” argued White.

Experts Opine

After carefully considering all the possibilities and the company’s fundamental strengths, the analyst reiterated a Buy rating on the stock, with a price target of $184.

Coming to the rest of Wall Street, 22 out of the 27 analysts that are covering the stock believes the company is worth a Buy rating. On the other hand, 4 analysts maintain a cautious stance, with a Hold rating. Lastly, 1 analyst holds a Sell rating on the stock. Overall, the analyst consensus rating is a Strong Buy.

The Apple stock forecast shows the average price target to be $179.8.

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