The new Apple retail store in Istanbul.
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Apple earnings estimates and price targets continue to slip lower as the Street turns wary ahead of the company’s June-quarter report, due July 28.
Investors are struggling to figure out how the June quarter results—and September quarter guidance—will be affected by fierce currency headwinds, the progress of the reopening of the Chinese economy following a recent lengthy Covid-related shutdown and signs of slowing consumer spending.
In the latest additions to a series of Wall Street notes on the upcoming quarter, both Morgan Stanley analyst Katy Huberty and Wells Fargo analyst Aaron Rakers trimmed their price targets on Apple (ticker: AAPL) stock, though both keep their Overweight ratings on the stock. Huberty, long one of the most influential Apple analysts, says she likes the stock as a “flight-to-quality” option in a downturn, but adds “we aren’t pounding the table into earnings.”
Huberty cuts her target to $180 from $185; Rakers goes to $185 from $205.
Huberty writes that she expects June-quarter results to be slightly below the Street consensus estimates for revenue of $82.5 billion and earnings per share of $1.16, anticipating both Macs and services revenue will underperform, more than offsetting expected strong iPhone sales. Huberty is projecting revenue of $80.6 billion and EPS of $1.10.
Huberty’s outlook for the quarter assumes a five-percentage-point headwind from currency, above the three points of drag Apple had forecast, but with the impact from supply shortages at the low end of the company’s guidance range of $4 billion to $8 billion. Huberty believes that Mac and iPad sales were both impacted by the China shutdowns—she thinks iPad sales will be off 7% from the March quarter, with Macs down 26%.
Huberty expects Apple’s commentary on the macroeconomic conditions to be “relatively guarded.” She adds that with “high-income customer sentiment flashing signs of caution,” plus the strong dollar causing Apple to hike prices in some international markets, “the potential exists” that consensus estimates for the September 2023 fiscal year are too high. She notes that the Street sees revenue for next year of $414.6 billion, with profits of $6.51 a share; her own forecast is for revenue of $408.8 billion and EPS of $6.22.
For the September quarter, Huberty is projecting revenue of $89.3 billion, and profits of $1.27 a share, a little below consensus estimates for revenue of $89.9 billion and EPS of $1.31.
Rakers thinks June-quarter results will be in line with Street estimates, and that the company’s commentary on the last earnings calls adequately reflected headwinds from currency, China, Russia and supply constraints. His own model calls for revenue of $80.8 billion, and profits of $1.14 a share. Rakers thinks his iPhone forecast for the quarter could be too low—but that his Mac estimate might be too high, given recent weak data on the PC market.
Rakers asserts that the key for the quarter will be commentary on the outlook. “Overall, we see a worsening Covid situation in China and beyond, a deteriorating macro environment, and increasing FX impacts as the biggest risks to near-term estimates, but believe Apple is well positioned to navigate these challenges and believe iPhone demand can fare better than the broader smartphone industry,” he writes. “We believe our positive thesis on Apple remains intact.”
Apple stock on Wednesday is 0.5% higher at $151.80.
Write to Eric J. Savitz at [email protected]
