JPMorgan expects ‘modest’ Apple FQ1 beat, sticks with $210 price target

“That said, we expect the bigger driver of the earnings upgrade cycle to be F2Q (March-end) revenue/EPS expectations.” — Analyst Samik Chatterjee

From a note to clients that landed on my desktop Thursday:

Apple shares are up +15% since the last earnings report, where it missed consensus revenue estimates on account of supply chain challenges, and is outperforming the broader market (S&P), which is only up +3%, as expectations of an earnings upgrade cycle with the majority of the tailwinds associated with the iPhone 13 cycle tracking better than investor expectations.

We expect the upcoming earnings print for Dec-Q (F1Q) to feature some of the headwinds from the slow supply chain ramp in relation to new products, which will limit the magnitude of upside; although, we expect a modest beat nevertheless, led by better iPhone shipments.

That said, we expect the bigger driver of the earnings upgrade cycle to be F2Q (March-end) revenue/EPS expectations, which will include guidance for above seasonal iPhone revenue as the company achieves channel inventory balance later than in prior year’s and supply improves (iPhone builds expected to track 62 mn in F2Q22 vs. 50 mn in F2Q21 and 37 mn in F2Q20), even as demand drivers remain strong.

We forecast a modest beat on revenue/earnings for F4Q, but an upgrade for estimates for future quarters driving our estimates to be more materially above consensus for the full-year (FY22). While the recent outperformance does create a tough hurdle in relation to expectations from the print itself, we believe investors will continue to justify the premium earnings multiple (30x) on expectations of further earnings upgrades, driving the shares higher with the positive outcome from a combination of a modest F1Q beat and a better outlook.

Maintains Overweight rating and (Street-high) $210 price target. 

Cue Figures 1 and 2:

apple modest beat jpmorgan

My take: Now there are three big firms at $210: JPMorgan, Merrill Lynch and Evercore.  Right behind them at $200 are Wedbush, Citi and Morgan Stanley.

10 Comments

  1. Michael Goldfeder said:
    With iPhone sales being pushed out, Mac sales being pulled forward, and iPads being deferred due to parts going toward iPhones, I’m guessing that services are still churning at a nice pace. Although now it appears that with TSM coming in with a record quarter, and Apple being their biggest customer, then perhaps the expectations of $118 Billion in Revenue and $1.88 EPS consensus numbers in the First Quarter will be exceeded?

    But by how much? What say you Bart?

    0
    January 13, 2022
    • David Emery said:
      That raises an interesting question in my little mind: Let me lay down a set of categories, and then ask the question: (1) phones; (2) pads; (3) Macs; (4) watches, earpods, other small devices; (5) services. Which category has the highest profit margin? Which has the lowest margin?

      (What made me ask this was, if Mac and iPad sales are up while iPhone sales are down, is that A Good Thing or A Bad Thing for Apple profit margins?)

      0
      January 13, 2022
      • David Drinkwater said:
        I’d put my money on:

        Highest = Services
        Lowest = Macs

        The good news is, Services don’t require parts.

        0
        January 13, 2022
        • Bart Yee said:
          Agree, services margin is between 60-75%, hardware is typically around 30%.

          0
          January 14, 2022
    • Bart Yee said:
      @Michael Thanks for the query. My model is not finished yet but I do think the $118B consensus is likely low. The difficult part is determining how parts constraints hit different hardware segments and where Apple prioritized parts to go. A secondary issue was the impact of Covid production burps and how much demand got shifted to Q2. So will the hit be $6-8B or more than that? That would mean in a non-constrained environment Apple would have made at least $124-128B gross revenue. That’s an amazing number but hey, these are amazing times.

      As for EPS, this time we have a pretty good idea of shares outstanding so the calculation is a bit easier but net income is dependent on Gross revenue so there’s a bit of uncertainty there. But yeah, $1.88 is likely to also be low.

      2
      January 13, 2022
  2. Robert Paul Leitao said:
    Absent an earnings disappointment in the December quarter, I expect share price direction to be determined more by March quarter guidance than December quarter results. To my knowledge, the immediate post-Christmas week of sales will be included in March quarter results. Additionally, Apple will achieve supply-demand equilibrium in the March quarter on iPhones and iPads as supply constraints ease during the period. Anticipation of a CY2022 announcement of a new wearables line is also influencing the share price.

    3
    January 13, 2022
    • Roger Schutte said:
      fyi…iPhones are in supply balance but I wouldn’t say iPads are yet – the most expensive iPad Pros look to have been prioritized and are available in all local Apple stores with delivery 16 days out, regular iPads are none in local stores and delivery 45 days out, iPad Air available in some stores but delivery is 24 days out.

      2
      January 13, 2022
      • Robert Paul Leitao said:
        Roger: I don’t know if Apple achieved global supply channel goals for the iPhone by the end of the December quarter. While there may not have been any noticeable delays in US fulfillment, Lunar New Year celebrations commence on February 1st this year. The lead up to Lunar New Year is often a high demand period in China and other nations in the east.

        2
        January 13, 2022
  3. Dan Scropos said:
    $2.02 and strong guidance should make investors and Wall Street very happy.

    2
    January 13, 2022
    • Bart Yee said:
      I like your thinking, but I just don’t know if Apple management is going to give specific guidance or qualitative only as per the last 6 quarters.

      1
      January 13, 2022

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