Apple earnings preview: Goldman lifts price target before the Q3

When will Apple report its next round of results?

US tech giant Apple is set to report its third quarter (Q3) results, for the quarter ending June, this Thursday, 30 July.

Analysts bullish, but price target average implies downside

Overall, Apple (AAPL) has seen its share price run some 26% higher year-to-date – last trading at US$379.24 per share – on an implied market capitalisation of US$1.64 trillion. This comes as investors large and small flock to the tech sector, in spite of the headwinds, such as Covid-19, facing global equity markets.

Interestingly, though Wall Street’s overall take on Apple is a bullish one – with the tech giant commanding an average analyst rating of Overweight; the stock’s average analyst price target of US$365.65 per share, according to MarketWatch, may suggest that Apple has run ahead of its fair value at current price levels.

Indeed, this share price run up comes as Apple has seen its price to earnings ratio expand aggressively during 6 out of the last 7 quarters. Apple last traded at 29.06x earnings.

Even so, some analysts continue to see further stock gains from current price levels – with JP Morgan analysts recently upping their price target on AAPL to US$425 per share from US$365 per share – while retaining their Overweight rating. Here, analysts from the blue-chip investment bank said:

‘We believe investors looking for further upside have to focus on the longer-term earnings trajectory rather than expect near-term upside, as the likelihood of an earnings beat in F3Q (Jun) as well as strong early 5G cycle volumes (driving upside to calendar 2H20 estimates) appear to be priced in.’

Apple share price: growth to remain in focus

Given the company’s sheer size – growth and where Apple can find more of it – has been a persistent theme for investors and commentators over the last few years.

Looking back at the company’s second quarter results – growth has indeed begun to slow, with Apple reporting that overall revenues grew by just 1%, to hit US$58.3 billion in Q2. Products, Apple’s most important business arm, contributed a staggering ~US$44.9 billion to overall revenues.

For reference, according to a recent report from Counterpoint Research, Apple smartphone sales within the US fell by 23% during Q2 of CY20, on a year-over-year basis. Investors will likely be keen to see how accurate that research is, and the impact a potential decline in US iPhone sales has had on Apple’s top-line.

Like revenue, earnings pushed ahead moderately in the second quarter, with Q2 earnings per share coming in 4% higher on a year-over-year basis, at US$2.55 per share.

In saying all this, one area that investors have been eyeing for growth is Apple’s Services business segment. Growth here, particularly when compared to Products, has indeed been more robust, with the company reporting total Services sales of US$13,348 million during the second quarter – implying a year-over-year growth rate of around 16.5%.

Looking forward, Apple’s CEO, Tim Cook said:

‘We are confident in our future and continue to make significant investments in all areas of our business to enrich our customers’ lives and support our long-term plans — including our five-year commitment to contribute $350 billion to the United States economy.’

Apple share price: technical analysis

Looking at Apple’s recent price action from a technical perspective, IG market analyst Kyle Rodda said:

‘Apple’s share price recently broke below trendline support, as the stock’s record breaking run from its March lows came to a halt. Though dip-buyers have emerged since that sell-off, signs remain that technically speaking, momentum is becoming skewed to the downside. The MACD has signalled a bearish crossover, while the daily RSI has fallen to between the 50-60 mark.’

Mr Rodda concluded that:

‘Given the loft expectations and valuations of Apple shares leading into its 3Q earnings, the markets may be ultra-sensitive to bad any news delivered by the company. In the event of a sell-off, technical support around $US355 will be closely watched. In the event that support-level is broken, attention will turn to the key $US325-mark, which represents the support/resistance level the market established around Apple share’s February highs.’

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