Just How Much Will Apple (AAPL) Disappoint Street FQ2 Numbers Tomorrow- And Does It Matter? Top Analyst Sheds Light

As far as RBC Capital's Amit Daryanani is concerned, there is so much more to Apple than whether or not tomorrow's FQ2 earnings show underwhelms.


Watch out, warns one of Wall Street’s best performing analysts on the big Apple Inc. (NASDAQ:AAPL) machine’s second fiscal quarter showcase for 2018 out tomorrow evening. This tech titan is set to underperform on both the second fiscal quarter print as well as the third fiscal quarter guide- at least from the eyes of top analyst Amit Daryanani at RBC Capital.

That said, the analyst maintains an Outperform rating on AAPL stock with a $203 price target, which implies a 22% upside from current levels, as he still spotlights various growth drivers in the company’s back pocket.

Here’s why: Daryanani believes Street-wide frustration is an exaggerated reaction; especially for a narrative that is far more enticing than missed iPhone unit numbers.

“We think the magnitude of investor negativity is likely overdone and while aggregate consensus numbers (which frankly are stale) may be missed, we think AAPL could guide aggregate rev/ GM/EPS inline to ahead of buyside fears. Fundamentally, we remain comfortable with our estimates for June-qtr that we adjusted in our 3/28 note implying Jun-qtr iPhone shipments at 39M. We see sentiment and EPS trajectory shifting up post this print as investors get past the iPhone unit dynamics and focus on – a) AAPL’s ability to monetize the install base (how revenues can grow mid-single digits with iPhones flat) and b) AAPL’s ability to drive double digit EPS growth given material update to capital allocation,” writes the analyst, adding: “We see several levers that AAPL can use to convert low single digit unit/sales growth to mid-teens EPS growth 1) Gross margin upside from cost downs, NAND tailwinds & yield efficiencies, 2) Services growth, & 3) Capital allocation.”

For the second fiscal quarter, Daryanani angles for $60.1 billion in revenue and $2.62 in EPS from the titan, against the Street’s “stale” forecast calling for $61.2 billion and $2.69. Additionally, suggested with the analyst’s estimates is an implied 51.8 million iPhone units against the Street’s 53 million with gross margins of 38.3% compared to the Street’s 38%. For context, the AAPL team’s guide looks for 38.0% to 38.5%.

Daryanani’s channel checks with suppliers signal expectation for new iPhones ranges roughly between 80 to 90 million units for the back half of the year, primed to underclass suppliers’ expectation of around 100 to 120 million units for the iPhone 8 and X in the beginning of last year. Moreover, suppliers presently expect a “normal ramp schedule,” that has odds to begin sometime around next month compared to July of 2017.

Glancing at the third fiscal quarter, Daryanani estimates AAPL can achieve $50.7 billion in revenue along with $2.16 in EPS, compared to the Street’s expectations for 51.9 billion and $2.15. The analyst assumes iPhone units will circle 39 million, under the Street’s forecast for 42 million. For fiscal 2019, the analyst maintains his expectations at $275.0 billion in revenue and $13.15 in EPS, more confident in the bigger picture than the Street’s $270.6 billion and $12.95 projections.

Amit Daryanani has a very good TipRanks score with a 78% success rate and an impressive ranking in the top #25 analysts on Wall Street: #24 out of 4,775 analysts. Daryanani yields 25.8% in his annual returns. When recommending AAPL, Daryanani garners 25.8% in average profits on the stock.

TipRanks indicates AAPL has healthy optimism hovering around the stock when it comes to majority Wall Street opinion. Out of 29 analysts polled in the last 3 months, 17 are bullish on AAPL stock while 12 remain sidelined. With a return potential of nearly 17%, the stock’s consensus target price stands at $192.52.

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