OK, Apple (AAPL). It’s officially earnings season again, and time to show investors what you’re made of. Apple is set to release fiscal first-quarter results after the market close today. With shares of the tech giant tumbling about 25% since it last reported in early November, now’s a great time to take a closer look at what we should expect.
RBC analyst Amit Daryanani believes investor sentiment remains muted due to concerns around iPhone including China slowdown, elongating replacement cycles given maturity, high ASPs and limited innovation. The sentiment is unlikely to improve materially with Mar-quarter guidance but Daryanani thinks the unit downside risk is now more or less in estimates.
“We think the implied slowdown in services is something that merits closer scrutiny. We note that it is at least partly due to lower Apple Care spend as iPhone units slowed down and importantly data points indicate AppStore remains strong (20%+ growth as per Sensor Tower). It appears that China gaming restrictions are easing and though game releases would remain constrained we could see sequential benefits to Services. We think gross-margins could be the upside lever that should keep EPS and FCF steady and enable AAPL to continue investing in their ecosystem. In addition, Other product segment should continue to perform well given new Apple Watch and rising AirPods attach rate. Net/net: While investors will likely wait for March-qtr clarity, we think risk/reward is attractive,” Daryanani noted.
Daryanani reiterates an Outperform rating on Apple shares, with a price target of $185, which represents a potential upside of 20% from where the stock is currently trading. (To watch Daryanani’s track record, click here)
Overall, Wall Street is torn when it comes to whether to sing the iPhone maker praises or assess with an apprehensive gaze, as according to TipRanks, out of 36 analysts polled in the last 3 months, 17 are bullish on Apple stock while 19 remain sidelined. With a potential upside of nearly 18%, the stock’s consensus target price stands at $183.98. (See AAPL’s price targets and analyst ratings on TipRanks)