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Stock Market Analysis

Will its earnings report give Apple’s share price some bite?

Apple’s share price has surged 66.7% since a low on 23 March to hit $373 by 28 July’s close.

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During this period, Apple’s [AAPL] share price rise outpaced all of its FAANG peers — even Amazon [AMZN], which climbed by 57.7% in the same period.

However, many remain cautious about Apple’s share price until the company offers a clear sign of what will happen to its 5G iPhone 12 model — expected to be launched toward the end of the year.

On 22 July, Apple’s share price dropped 4.8% and it has remained at this level since. In the four trading sessions since it has regained just 0.4%.

When Apple releases its Q3 2020 results on 30 July, investors will be keen to understand how likely it is that Apple’s share price will experience a post-earnings bounce.

What happened in Q2? 

In a move that reassured shareholders, Apple raised its dividend by 6% last quarter and upped its buyback program by $50bn, despite its peers cut or halted such schemes, Zacks recently noted.

In its Q2 earnings report in April, Apple reported that iPhone revenue was down 7% year-over-year, but a 16% increase in services revenue partially offset this, according to CNBC. Investments in music, TV streaming and gaming services has strengthened this segment. Total revenue growth slowed to 0.5%, dropping from 9% in the previous reported in the previous quarter.

What to expect for Q3?

Katy Huberty, managing director of research at Morgan Stanley, suggests that Apple has a favourable setup for Q3 and will beat expectations.

In a note to clients, seen by Apple Insider, Huberty predicted revenue of $55.1bn. iPhone revenue, which she expects to come in at $24.1bn, and a 16.7% growth in service revenue, should help support this. Huberty predicts Apple will announce EPS of $2.18.

According to Zacks, Apple has beaten consensus EPS estimates in the last four reports, which bodes well for the coming quarter.

“Investors are coming to realize that Apple may not be as dependent on significant iPhone cycles to sustain growth as they once thought and that the ecosystem Apple has created is differentiated and worthy of a platform valuation multiple,” Huberty wrote.

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“Investors are coming to realize that Apple may not be as dependent on significant iPhone cycles to sustain growth as they once thought and that the ecosystem Apple has created is differentiated and worthy of a platform valuation multiple” – Katy Huberty, managing director of research at Morgan Stanley

Meanwhile, Goldman Sachs [GS] analysts suggested that although results are likely to meet expectations, the company is unlikely to offer forward guidance, which will leave investors in the dark about whether its 5G iPhone will arrive on time.

According to Zacks, Apple’s adjusted Q3 earnings is forecast to slip by 8.7% to $1.99 per share. It also believes Apple will report a 5% decrease in sales and that iPhone sales will drop by 21%.

However, there is good news in the form of its services and wearables sales, which Zacks expects will increase by 14% and 7% respectively.

Zacks consensus figures show that full-year fiscal 2020 sales are expected to climb 1%, with full-year 2021 figures expected to come in 15% higher.

Market Cap$1.648trn
PE ratio (TTM)29.87
EPS (TTM)12.73
Quarterly Revenue Growth (YoY)0.5%

Apple share price vitals, Yahoo Finance, 30 July 2020

Market outlook

Morgan Stanley raised Apple’s share price target from $340 to $419 in July, which remained unchanged in Huberty’s note.

Goldman Sachs, meanwhile, has maintained a sell rating on the stock and boosted its price target from $268 to $299. Despite the upward revision, this would still imply a 19.8% drop from current levels.

“We see Apple’s recent stock performance and absolute trading level as unsustainable and would continue to recommend that investors avoid the stock,” Goldman Sachs said in a note.

“We see Apple’s recent stock performance and absolute trading level as unsustainable and would continue to recommend that investors avoid the stock” – Goldman Sachs

However, the consensus among 38 analysts polled by CNN Business is to buy Apple’s share price. This was a rating held by 23 analysts, while eight rate it a hold.

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The median 12-month share price target from 36 analysts polled by the publication is $395, a 4.8% increase on Apple’s share price as of 28 July’s close.

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