Apple earnings are due on Tuesday. Why is the market mat already getting past it?

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Apple is due to report earnings on Tuesday. Sasha Steinbach/Getty Images for Apple

Apple shares recently soared to all-time highs, amid increasing investor expectations for June quarter earnings, due after Tuesday’s closing bell. But the launch of the next generation of iPhones, expected to be unveiled in September, could be the real difference.

Apple’s recent rally has not erased concerns about the stock. The increased regulatory scrutiny of Big Tech in general and Apple (stock ticker: AAPL) in particular, with a particular focus on the fees Apple charges developers who distribute apps on the company’s App Store for iPhones, iPads and Macs, is the obvious. There are also concerns about tough year-over-year comparisons, and some investors fear the recent strong growth in Mac and iPad sales will slow as the economy returns to more normal conditions. Others worry that the next batch of iPhones will only offer incremental improvements, and that demand may be disappointing.

But no one seems to worry too much about earning. The Wall Street consensus for the fiscal third quarter is $72.9 billion in revenue and earnings of $1 per share. Even analysts who are cautious about stocks think these numbers are too low. For example, BofA Global Research analyst Wamsi Mohan expects revenue of $77 billion, with earnings of $1.05 per share, driven by strength across the company’s hardware portfolio. Mohan still has a neutral rating and a price target of $160 per share, and warns that the company faces tough comparisons in the coming quarters given higher Mac and iPad sales during the pandemic.

He has a point. In the March quarter, Apple sales rose 54%, driven by strong growth across the wallet, with sales increases of 66% for iPhones, 70% for Macs, 79% for iPads, 25% for wearables, and 27% for services . Street consensus estimates for the June quarter are $34.2 billion in iPhone sales, $7.2 billion for iPads, $7.9 billion for Macs, $7.8 billion for wearables, home and accessories, and $16.3 billion for services.

The company did not provide detailed guidance for the quarter, but it warned that sales could fall by as much as $4 billion due to a supply shortage of Macs and iPads linked to component shortages.

However, Dan Ives, an analyst at Wedbush, thinks Apple is headed for another overall win, driven by continued strong demand for the iPhone 12, with particularly strong demand in China. “While the chip shortage was a significant drag for Apple during the quarter, we believe that the strength of iPhone and services in the quarter neutralized any short-term weakness that the street was anticipating three months ago,” Ives wrote. The analyst says Apple remains his preferred technology choice, with a “batch” of services and demand for the iPhone. He believes the company could reach a market capitalization level of $3 trillion in 2022, from less than $2.5 trillion now. Ives maintains its superior rating and price target of $185.

Canaccord analyst T. Michael Walkley also reclassified the buyout of Apple stock, while raising the target price to $175, from $165. Likewise, the June quarter results are expected to beat Street estimates. One interesting question is whether Apple will return to providing quarterly guidance, a practice the company has suspended during the pandemic. If they do, Walkley says, expect expectations to exceed current street expectations.

“Apple is well positioned to continue to benefit from the 5G upgrade cycle, and we anticipate strong overall growth trends as 5G smartphones increase and its installed base expands with higher-margin service revenues,” he wrote. “Apple’s ecosystem approach, including an installed base of over 1.65 billion devices globally and now more than 1 billion iPhone users, should continue to generate strong services revenue.”

But the big news may not have come yet. Once the company navigates past earnings, Apple investors will focus on the fall’s iPhone launch. (Let’s call it the iPhone 13, though Apple didn’t specifically name the new line.) Ives sees incremental improvements, including Lidar capability across all phones, which will improve its usefulness for augmented reality apps. More importantly, he notes that about 250 million of the installed base of nearly one billion iPhones are at least 3.5 years old and due to be updated.

As Morgan Stanley’s Katie Huberty noted, Apple shares tend to outperform the market in the direction of new phone launches. There is no reason to believe that this year will be any different. We expect a strong quarter in June from Apple, with the potential for a higher rally as we approach fall.

We can re-evaluate then.

Write to Eric J. Savitz at [email protected]

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