What Wall Street is saying about Apple ahead of earnings

Apple (AAPL) is scheduled to report third fiscal quarter results after the market close on Thursday, August 3, with a conference call scheduled for 5:00 pm ET. What to watch for:

“CHALLENGING ENVIRONMENT”: Last quarter, Apple beat consensus sales and earnings expectations, reporting EPS of $1.52 on Q2 revenue of $94.8B, which compared to consensus forecasts of $1.43 and $92.96B, respectively.

In addition, Apple boosted its quarterly dividend by 4% to 24c per share and announced its board has authorized an additional $90B for share repurchases.

Apple CEO Tim Cook said in the earnings release: “We are pleased to report an all-time record in Services and a March quarter record for iPhone despite the challenging macroeconomic environment, and to have our installed base of active devices reach an all-time high.”

Subsequent to that report, Jefferies analyst Andrew Uerkwitz assumed coverage of Apple with an unchanged Buy rating and $195 price target following what the firm described as a “resilient quarter.” “Few things in the market are as certain as Apple’s cash-generating abilities, product resilience, and remarkably high consumer sentiment” and the March quarter “had all three on display,” said the analyst at that time.

More recently, Jefferies raised the firm’s price target on Apple to $225 while maintaining a Buy rating on the shares. After June, during which Apple set out its long term vision of computing, the company’s upcoming earnings call “will bring us back to the reality of iPhone and services being the two most important drivers of the stock” and both are likely to show enough resilience to drive an inline to slightly better quarter, the analyst told investors in an earnings preview note titled “Quiet Quarter Expected.” The firm, which notes that its Apple revenue forecast is “slightly ahead of” the Street at $83.6B versus $81.6B, argues that the stock will “remain a source of safety in uncertain economic conditions.”

Along with its own earnings preview, JPMorgan raised the firm’s price target on Apple to $235 from $190 and kept an Overweight rating on the shares. The analyst established a December 2024 price target, above the firm’s prior December 2023 price target. Investors will start to pivot to looking beyond 2023, says the firm, which thinks Apple is well positioned to drive higher confidence from the upcoming earnings print as an “earnings compounder” that continues to drive resilient performance. Even as Apple cycles past the period of revenue declines that started in fiscal Q1 and returns to growth again in fiscal Q4, investors should be further convinced of the resilience of the replacement cycle drivers for the hardware products as well as the diversified growth drivers in Services, the analyst told investors.

Morgan Stanley, meanwhile, expects Apple to post an “in-line June quarter,” but sees 4%-9% upside to September quarter revenue and EPS guidance, driven by relative strength in iPhone, Mac, Services and gross margins, which the firm expects to be a “positive stock catalyst.” After five straight quarters of Apple guiding forward quarter estimates below consensus, the company is set up for the firm to expect positive estimate revisions post-earnings. Morgan Stanley added that “history shows that this kind of setup drives the greatest outperformance in Apple’s stock in the day, week and month post-earnings.” The firm maintains an Overweight rating and $220 price target on Apple shares.

Current consensus EPS and revenue forecasts for Apple’s June-end quarter stand at $1.21 and $81.55B, respectively, according to data from Bloomberg. Consensus EPS and revenue forecasts for Apple’s September-end quarter stand at $1.36 and $90.51B, respectively, according to Bloomberg.

VISION PRO: During Apple’s WWDC Keynote in early June, the company revealed a number of new products, including a new 15-inch Macbook Air and the long-awaited Vision Pro, a high-end mixed reality AR/VR headset.

The Vision Pro, which Apple calls “a revolutionary spatial computer that seamlessly blends digital content with the physical world, while allowing users to stay present and connected to others,” starts at $3,499 and will be available early next year at Apple Store locations in the U.S., with more countries coming later next year.

Following the keynote event, DA Davidson analyst Tom Forte downgraded Apple to Neutral from Buy with a price target of $185, down from $193. Apple announced the launch of “what could be its most significant new hardware product since the iPhone in 2007,” but the firm downgraded the shares on the belief that any good news from the AR/VR product launch was already reflected in the share price. In addition, it believes there are “important structural challenges” for Apple when it comes to consumer adoption of AR/VR hardware, which could limit the near-term impact on its sales and profitability.

On July 3, Financial Times’ Qianer Liu, Patrick McGee and Kana Inagaki reported that Apple has had to make significant cuts to production forecasts for its mixed-reality Vision Pro headset amid the complexity of the design and production difficulties. The company, which is also delaying plans for a cheaper version of the device, is preparing to make less than 400,000 units in 2024, according to two people close to Apple and contract manufacturer Luxshare.

AI: On July 19, shares of Apple advanced in afternoon trading after Mark Gurman of Bloomberg reported that the tech giant is quietly working on artificial intelligence tools that could challenge OpenAI, while adding that the company has yet to devise a clear strategy for releasing the technology to consumers. Apple has built its own framework to create large language models, people with knowledge of the efforts told Bloomberg. With that foundation, known as “Ajax,” Apple also has created a chatbot service that some engineers call “Apple GPT,” the sources added. The artificial intelligence push has become a major effort for Apple in recent months, with several teams collaborating on the project, said the people. Shares of Microsoft (MSFT) and Google parent Alphabet (GOOGL) each moved lower that afternoon following Gurman’s report.

Citi analyst Atif Malik kept a Buy rating on Apple with a $240 price target after Bloomberg reported that the company is working on its own framework to create large language models called “Ajax” that could challenge OpenAI, and also created a chatbot service internally called “Apple GPT.” The analyst believes Apple is aiming to catch up with the artificial intelligence trends across both infrastructure and applications. Citi foresees Apple’s upcoming devices to further build on its predecessors’ AI computing processing capabilities with advanced Siri and generative AI based app tools to follow in first half of 2024.

PRODUCT HEADLINES: During the quarter, other reporting on Apple’s products and production have included:

• Apple faces challenges making larger screen for iPhone 15 Pro, Information says
• Apple seeks to keep iPhone shipments steady in 2023, Bloomberg reports
• Apple Card Savings account offered by Goldman Sachs (GS) hits over $10B in deposits

SENTIMENT: Click here to check out recent Media Buzz Sentiment on Apple as measured by TipRanks.