Apple, Inc. (NASDAQ: AAPL) is scheduled to release its fiscal year 2023 fourth quarter results Thursday after the market close. An analyst at KeyBanc Capital Markets is not too upbeat and prefers to stay on the sidelines.
The Apple Analyst: Brandon Nispel maintained a Sector Weight rating for Apple stock
The Apple Thesis: Apple’s stock will likely perform in line to below the Nasdaq Index, said Nispel in a note released Monday. The analyst expects the tech giant to report generally in-line September quarter results.
Data points on upgrade rates and postpaid phone gross additions from the big three U.S. carriers suggest Apple’s declining revenue trend in the Americas may not turn around as quickly as expected, the analyst said.
The analyst noted that upgrade rates and postpaid phone gross additions were down 13% year-over-year in the September quarter compared to a 19% drop in the previous quarter, with the upgrade rates specifically falling 21.9% and remaining just above all-time lows.
Things aren’t likely to improve in the fiscal year 2024 first quarter, which encompasses the key holiday selling season, Nispel suggested. The two metrics are expected to show an 11.4% drop in the first quarter compared to consensus expectations for 5% growth, the analyst said.
Competitive pressure in China and a stronger dollar may not help bulls’ narrative for the stock, Nispel said. The Huawei competition will likely limit Apple’s near-term market share in China, he said. The analyst expects Huawei to sell 10-11 million units of smartphones in the second half of 2023 and 60 million units in 2024.
The dollar has appreciated about 3% since Apple gave its guidance on its earnings call in early August, when it said it expects a 2% headwind from forex in the December quarter, the analyst said.
“We believe these are likely two reasons why consensus expectations for accelerating growth in every single international market in 2024 is unlikely,” he added.
Nispel sees the emerging AI narrative as bearish for Apple as the tech giant may have to spend more to catch up with the current AI leaders. Higher capex is generally viewed negatively by the market, he said. Cupertino has a solid foundation of AI within its products and services, but it has very little room for incremental capital investment in 2024 while also growing FCF, he added.
KeyBanc’s concerns are less around the September quarter but around the December quarter, Nispel said. The analyst expects a 5% year-over-year decline in hardware revenue in the holiday quarter, with weakness likely seen across hardware categories.
Apple stock’s valuation is still expensive, the analyst said.
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