Apple’s third-quarter report on Thursday is set to be the highlight of a busy earnings week. Optimism could be dented if the tech giant warns about a tough smartphone market when it updates on outlook, but analysts at Piper Sandler and Wedbush recommend investors look past that and back the stock to go higher.
Apple is dealing with a slowdown in smartphone sales along with the rest of the sector.
Consensus forecasts are for Apple to generate $40.23 billion in revenue from iPhone sales in the June quarter, falling from $51.33 billion in the preceding quarter.
Analysts at Piper Sandler wrote in a research note on Monday that they expect Apple to deliver on expectations for the June quarter and, more importantly, offer a September quarter forecast that will match or slightly exceed Wall Street consensus expectations.
“In our conversations, most investors feel that a soft China could pose a risk to the numbers and further commentary, but we feel that Apple’s position in China is on a solid footing and that the company is likely to see only a small if any decline in its iPhone sales,” wrote Piper Sandler’s Harsh Kumar.
Kumar pushed his target price on Apple up to $220 from $180, reiterating an Overweight rating on the stock.
Wedbush’s Daniel Ives also said forecasts for a significant downturn in iPhone sales could prove to be unduly pessimistic.
“We believe Apple should post at least in-line June quarter iPhone revenue with upside likely when the company reports this Thursday after the bell,” Ives wrote.
Ives said the potential upside surprise could come from gaining market share in China, while holding steady in the U.S. and Europe. However, he warns that Apple could give a muted outlook for the current quarter.
“We would expect relatively conservative September guidance as this is all about the drumroll to the main event with the anniversary iPhone 15 launch slated for the mid September time frame,” Ives wrote.
Overall though, Ives suggests backing the $3 trillion stock on a likely acceleration in services revenue in 2024. Based on adding another 100 million iPhone users in the past 18 months, plus price increases and improving activity on the App Store, he expects the services business to accelerate to double-digit growth in the coming quarters.
“We believe the Services business is worth $1.3 trillion to $1.4 trillion for Apple’s sum-of-the parts valuation and remains an underappreciated asset by the Street with many naysayers still not believers in the “new Apple valuation” reset in motion,” Ives wrote.
Ives kept a Buy rating and $220 target price on Apple stock.
