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Expectations for Apple’s earnings have been steadily ratcheting higher.
Don Emmert/AFP via Getty Images
Apple
heads into its December quarter financial results with its stock sitting at an all-time high. Expectations on Wall Street have been steadily ratcheting higher, with particularly high hopes for iPhone sales after the company kicked off initial sales of the iPhone 12 lineup in the middle of the quarter.
The Street also has high hopes for MacBook sales, driven by the debut of the first laptops powered by Apple-designed processors, and a continued tailwind from the pandemic-driven work-from-home trend. Throw in expectations for continued strong demand for iPads, wearables and services, and you have the recipe for a strong quarter.
The only question is whether expectations have gone too far.
Apple (ticker: AAPL) did not provide guidance for the quarter, which adds an element of volatility to this report. Street consensus calls for revenue of $102.8 billion and profits of $1.40 a share. For the seasonally softer March quarter, the Street sees $78.9 billion in revenue and profits of 90 cents a share.
Street consensus estimates as tracked by FactSet calls for iPhone revenues to rise 6.4%, to $59.6 billion, with double-digit growth in all other categories. The consensus has iPads sales at $7.4 billion, up 23.4%; Mac sales of $8.6 billion, up 20.4%; wearable sales of $11.5 billion, up 14.8%; and services revenue of $15.2 billion, up 19.3%.
Investors will also be keen to see if the company resumes providing earnings guidance.
On Friday, Cowen analyst Krish Sankar repeated his Outperform rating on Apple, upping his price target to $153, from $133. Sankar expects the company to beat expectations for the quarter at both the top and bottom lines, driven in particular by strong iPhone demand. He’s projecting $104.5 billion in revenue and profits of $1.46 a share. The analyst estimates Apple sold 77 million iPhones in the quarter, up 97% sequentially and 7% year over year. He sees iPhone revenues of $60.1 billion, up 7% from a year ago, with services revenue increasing 26% to $16 billion. Apple remains Sankar’s top pick in the IT hardware sector.
Morgan Stanley analyst Katy Huberty last week reiterated her Overweight rating on Apple stock lifting her price target to $152 from $144. She writes that her checks find that Apple saw strength across its products and services portfolio in the quarter, driven by 5G iPhone adoption, the work-and-learn-from-home trend, and sustained engagement with the App Store.
“We are buyers ahead of what we expect to be a record December quarter print,” Huberty wrote in a research note. “Our recent conversations suggest investors expect Apple to release solid, but not great, December quarter results. We disagree and believe that Apple is likely to report record quarterly revenue and earnings.”
Huberty expects double-digit revenue growth in all revenue segments, with “risks skewed to the upside” for iPhones, Macs, and Services. Her revenue estimate for the quarter is $108.2 billion, well above consensus at $102.6 billion. She sees profits for the December quarter of $1.50 a share, above the Street at $1.40.
Huberty thinks the iPhone 12 was Apple’s most successful product launch in the past five years. She forecasts 78 million iPhones shipped in the quarter at an average selling price of $825, delivering 14% revenue growth to $63.9 billion—twice the growth rate the Street consensus currently projects for iPhone revenue.
Loop Capital analyst Ananda Baruah recently repeated his Buy rating, boosting his target price to $155 from $131. Baruah wrote in a research note that he expects a “really big year” for Apple and he thinks the signs should be clear with the coming earnings report. Baruah thinks there could be material upside to Street numbers for both the near term and throughout calendar 2021, driven by strength in both iPhones and Macs. Baruah also thinks the company could see upside from healthy growth in iPad, AirPod, Watch, and Services.
Evercore ISI analyst Amit Daryanani recently repeated his Outperform rating on Apple shares while lifting his price target on the stock to $145 from $135. Daryanani pointed to a combination of better-than-expected unit demand and higher-than-expected average selling prices, as consumer demand trends toward the higher-end Pro and Pro Max versions of the new phone line. He also noted “better services growth,” given better than 30% growth in downloads from the App Store.
Apple shares closed Monday at a record $142.92. After rallying 82% last year, the stock is up close to 8% so far in 2021.
Write to Eric J. Savitz at eric.savitz@barrons.com
