By Senad Karaahmetovic
Bernstein analyst Toni Sacconaghi has previewed Apple’s FQ3 earnings report that is due on July 28 after the market close.
Sacconaghi is above the consensus on both EPS and revenue. He sees Apple (NASDAQ:AAPL) reporting EPS of $1.19 on revenue of $84 billion, higher than the consensus of $1.15 per share on revenue of $82.5 billion.
Sacconaghi also sees “better than expected supply availability in the quarter and healthy Chinese demand,” which is likely to be offset by incremental currency headwinds (-170 bps).
On the outlook for FQ4, the analyst expects Apple to continue to provide "guidelines" rather than guidance. He also notes that Apple stock tends to outperform through the iPhone launch, which is likely due in September.
“We see conflicting forces at play for AAPL's Q4. On the one hand, and to the degree that manufacturing (and component issues) are more benign in Q4, Apple could potentially deliver above sequential growth (and likely consensus) in Q4, also helped by some inventory replenishment. On the flipside, incremental consumer weakness and currency headwinds could weigh on results… We suspect any commentary that points to at least high-single digit YoY growth for FY Q4 would likely be viewed as positive (consensus at +8%),” Sacconaghi added in a client note.
Despite some positives, Sacconaghi warns of risk to 2023 EPS estimates, which may prove to be “too high.”
“Apple is consumer centric, and is highly transactional, with less than 10% of its revenues and profits being recurring - meaning it could be vulnerable to a downturn. While it's still too early to call what the iPhone 14 cycle might look like, we continue to believe that AAPL may have "over-earned" in FY 21 (and FY 22) amid work/ learn from home and strong consumer spending, which could reverse, particularly as consumers' spending priorities change,” the analyst added.
On the valuation front, Sacconaghi says the risk/reward over the next 6 months - 2 years for Apple stock is “neutral to modestly negative.”