Apple (AAPL) Earnings Preview: The Countdown Begins

In a preview of AAPL's upcoming quarterly earnings show, Nomura's Jeff Kvaal sees a resilient stock facing challenges from iPhone volumes to capital return.

Apple Inc. (NASDAQ:AAPL) has its second fiscal quarter earnings set for a release come May 1st once the bell tolls, and for now, Nomura analyst Jeff Kvaal is hedging his bets and “sticking to the sidelines.”

In a cautious earnings preview, the analyst reiterates a Neutral rating on AAPL stock with a $175 price target, which aligns evenly with where the stock is currently trading. (To watch Kvaal’s track record, click here)

On the one hand, Kvaal sizes up a tech giant that has been chased by ghosts of iPhone volumes and capital return, standout challenges that the analyst believes “the Street has well dissected” for the company’s second fiscal quarter. As such, these issues “should have only a modest impact on the shares.” There are no share drivers in the wings, warns Kvaal. That said, the analyst likewise sees strength in Apple’s stock despite these challenges, explaining: “We do not (yet) anticipate new positive catalysts, note the shares’ recent resilience, and retain our Neutral stance.”

Meanwhile, there remains the China factor, where shipment data is “weak” and “fits the iPhone narrative, an “overall pattern” where data points from domestic operators continue “uninspired” in the second fiscal quarter. Additionally, the analyst notes his colleague in Japan Akizuki-san pinpoints a 9% year-over-year dip in domestic shipments by international vendors (Apple) in the second fiscal quarter.

The analyst has dialed down his second and third fiscal quarter expectations under the Street and believes, “Investors may be steeled for results below our low-end estimates.” For the second fiscal quarter, Kvaal now forecasts 53.5 million units and $2.69 in EPS. Glancing ahead to the third fiscal quarter, Kvaal angles for 42 million units and $2.12 in EPS, adding: “While these are below consensus, of say, 43mn units in June, we believe investors may be prepared for guidance that implies as few as 40mn in June.”

“Only the details of Apple’s capital return policy remain outstanding. We consider the prospect of forthcoming details of Apple’s massive capital return plan enticing in a more volatile market; we believe this has contributed to its recent outperformance. We note, however, that the parameters of the plan are established. Only the particulars (dividend vs. buyback vs. M&A, 5 years or 7 or 9) remain. We thus expect little further upside,” asserts Kvaal, who understands that while it is “still a bit far away,” the “next cycle [is] coming into focus.”

Kvaal’s survey work seems to indicate a growing iOS base for the giant at a pace of roughly 10%, and unit volumes may take advantage as soon as upgrade rates stop getting longer. The company’s portfolio this year has odds to have “loosely stable” average selling prices (ASPs), wagers the analyst, who sees momentum ahead for services revenue thanks to iOS. On a final note, while Kvaal commends Apple Music as an advantageous data point for Apple, he currently is underwhelmed with the voice and artificial intelligence (AI) rollout when it comes to HomePod’s potential.

TipRanks indicates optimism circling the big AAPL machine. Out of 28 analysts polled in the last 3 months, 17 are bullish on AAPL stock while 11 play it safe on the sidelines. With a return potential of 8%, the stock’s consensus target price stands at $192.89.

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