Apple's better-than-expected June quarter: What the analysts are saying

Excerpts from the notes I've seen. More as they come in, new ones on top.

Melissa Fairbanks, Raymond James: Better than feared. We reiterate our Outperform rating on Apple and adjust our price target to $185 following June quarter results. Despite a number of headwinds including FX, China shutdowns, macroeconomic concerns, and component shortages, AAPL was able to deliver record June quarter revenue, and while specific September quarter guidance wasn’t provided, directionally the outlook appears better than consumer trends would suggest. Similar to commentary from QCOM on Wednesday, the premium tier of consumer devices is proving to be fairly resilient – and is certainly faring better than low/mid-tier markets. That said, while AAPL has not yet seen evidence of a macro impact on iPhone sales, management did not provide specific revenue guidance – as is typical in times of uncertainty. Outperform. Cuts target $5 to $185.

Erik Woodring, Morgan Stanley: Resilience Amid a Tough Macro Backdrop. June quarter results were better than we expected despite greater FX headwinds (partially negated by supply chain headwinds below mgmt's $4-8B guide) as a record June iPhone quarter more than offset underperformance in Mac and Wearables. Revenue growth will accelerate in the September quarter - we forecast 5% Y/Y growth vs. 2% Y/Y in the June quarter - a product of 1) solid iPhone demand and early iPhone 14 sell-in, and 2) easing supply chain pressures that will help Apple catch-up to unfulfilled iPad and Mac demand... Apple is not fully immune to broader macro challenges, and we are seeing a slowdown in spending impacting sales of more discretionary products such as Wearables, and Services such as digital advertising. Nevertheless, Apple's sticky customer base, continued product/services innovation, and more staples-like offerings keep Apple more insulated from these challenges than peers, limiting downside earnings risk. Overweight. $180.

Wamsi Mohan, BoA Securities: Something for the bulls and the bears. The bulls will focus on (1) beat in the qtr. on revs and gross margins, (2) supply remains constrained for Mac and iPad, (3) mix of iPhones remains very strong and channel inventory low, (4) delivering results despite a very challenging FX environment, and (5) installed base continues to grow with strong switching activity. The bears will focus on (1) gross margins are heading back lower (for FX and Mix reasons), (2) services growth is decelerating (both on constant currency and more so on reported) to potentially sub 10% in Sep qtr., (3) services margins are at a near-term peak as advertising (high margin) is slowing down, (4) weakness at the low end of portfolio of wearables (from an ASP perspective) could creep higher into other product areas, and (5) implied guidance was short of consensus and drives the start of a negative estimate revision cycle. We reiterate buy as we see many of the issues as cyclical not structural. Buy. $185.

Angelo Zino, CFRA: Our risk assessment reflects our view of Apple’s ability to shift towards higher-margin and more recurring Services offerings, which reduce the future earnings volatility of the company. In addition, we have a favorable view of the company’s scale, enormous cash position, and free cash flow potential. Despite a seemingly ever-evolving market for consumer-oriented technology products and the company’s need to rely on the success of product innovations, we forecast Apple’s ecosystem will continue to sustain retention rates higher than 90%. Buy. $175.

Abhinav Davuluri, Morningstar: Apple Deftly Navigates Challenging Supply Environment in Fiscal Q3 but Headwinds Loom. Narrow-moat Apple reported healthy fiscal third-quarter results that came in line with our estimates. We are maintaining our $130 fair value estimate and still view shares as overvalued. While we remain positive on Apple's ability to extract sales from its installed base via new products and services, we believe demand for Apple’s products is likely to slow in the next few quarters, following several stellar quarters of growth. Fair value $130.

Daniel Ives, Wedbush: Cook Delivers In "Top Gun Maverick Fashion" a Strong Quarter; China Holding Up. Last night Apple delivered a robust June quarter that will be the focus of the tech universe as the barometer for Cupertino is a major positive for the Street digesting this results. Apple delivered total revenues of $82.96 billion vs. the Street at $82.79 billion with iPhone revenue of $40.67 billion the star of the show and beating the Street's estimate of $38.59 billion despite fears of a clear miss with Covid shutdowns in China and macro swirls. Services of $19.60 billion came in just below the Street's estimate of $19.75 billion and better than whisper numbers. EPS of $1.20 beat the Street of $1.16 with margins all ahead of the Street. Outperform. $200.

Kyle McNealy, Jefferies: Decent Quarter Considering Headwinds + Samsung/Huawei Switchers… Reiterate Buy. Apple announced Jun Q results ahead of consensus but guided down for the Jun Q on incremental FX headwinds. Adjusting for headwinds in the Jun. Q and Sep. guide, we estimate core business constant currency growth to be 8% and 10%, respectively. We like the accelerating switching activity and think there’s further opportunity with 5G adoption, particularly as headwinds abate. Buy. $200. 

Gene Munster, Loup Ventures: iPhone is Stronger Than an Acre of Garlic. Apple is, once again, defying gravity and powering through the early stages of the macro downturn. This is based on what I believe, was the most important comment from the call: Cook's assessment that, in respect to the iPhone, "there was no obvious evidence of macroeconomic impact during the June quarter besides FX." The segment grew 3% year over year, which is more impressive than it sounds given it was up against a monster 50% comp last year. The iPhone is stronger than an acre of garlic.

Harsh Kumar, Piper Sandler: Apple Executes Once Again. During the June quarter, Apple reported results slightly better on both the top and bottom lines. Apple appears to be seeing no meaningful impact on its iPhone business in the current macro environment. In addition, supply opened up in a meaningful way in China at the end of the June quarter, which allowed some pent-up demand to be met. Most products and services set records in the quarter despite the modest supply issues and macro uncertainty. Moving forward, FX appears to be the biggest headwind for Apple, accounting for ~600 bps of growth headwinds. The FX, along with the lower revenue, is putting pressure on the margin structure, but we view this as temporary. Apple’s strength lies in its brand loyalty as well as its tremendous install base, both of which are helping offset the macro. Overweight. $195. 

Kyle McNealy, Jefferies: Better than Expected Supply Chain Performance. The company is still not issuing detailed guidance. From their goal-post style guide, we estimate they’re looking for $86-89bn in Q4 sales and $1.17-$1.31 in EPS versus consensus for $90.0 and $1.32 respectively. FX impact is expected to be as 6% headwind versus the 3% in Q3. The incremental FX impact more than accounts for the below consensus guide.

Amit Daryanani, Evercore: Building a Wider Moat Through Macro Worries. We would stress that AAPL revenue appear more driven by supply constraints vs. macro worries – though they did note pockets of softness due to macro (digital advertising, wearables, etc)... We think AAPL remains uniquely positioned to sustain mid/high single digit sales and low/mid teens EPS growth in FY23 and potentially beyond. Outperform. Raises target $5 to $185. 

Daniel Ives, Wedbush: A "Top Gun Moment" as Cook Navigates Apple to Strong Results Despite Fears. The all-important China region posted revenues of $14.60 billion coming in just below their year-ago performance of $14.76 billion which we view as a Top Gun Maverick type feat for Cook & Co. given the ongoing COVID shutdown and speaks to the overall demand story seen with Apple...We walk away from the conference call and June results incrementally more positive that Apple can navigate this economic storm with the demand and growth story well intact for iPhones and Services front and center. Outperform. $200.

24 Comments

  1. Fred Stein said:
    Below the radar, strong positive indicators:
    1/2 Mac customer new to mac
    1/2 iPad also new
    2/3 Watch also new
    Doubled business in India and strong growth in Indonesia, Brazil, and Vietnam.

    All long-term growth sustainers.

    And soon Apple starts a 2 year upgrade cycle for all devices with Apple 5G and 3nm technology.

    5
    July 29, 2022
  2. With Apple up $4.50/share too bad we can’t be a fly on the wall during the conference calls now being held by sovereign wealth funds: “Well it looks like the markets are picking back up again Johannes. We’ve got too much in cash and Treasuries. What positions should we increase? We’ve always done well with those Apple shares.
    You’re right, pick up a few hundred thousand more.”

    2
    July 29, 2022
  3. Gregg Thurman said:
    Looking at AAPL’s chart since June 1, I see a trend line commencing on June 16 that is going on a virtually straight line until Wednesday and Thursday of this (earnings) week. Today AAPL is struggling to achieve yesterday’s After Market high.

    In the near term, with RSI nearing 70 (over bought territory) I think it’s quite possible that AAPL has peaked and could flatten, or possibly pull back starting Monday.

    In the long term, I firmly believe management’s ability to hedge the USD and its supply chain will assure continued performance that exceeds WS and estimize.com’s consensus estimates.

    As regards the Fed Discount rate, I see another increase, but it won’t exceed 50 basis points.

    On lessening fears of recession and inflation we could get a marginal expansion in AAPL’s multiple. Certainly a cessation of the Ukraine/Russia war will knock the stuffing out of the inflation monster, it’ll just take another year after that to vanquish it.

    The significant gains in AAPL everyone wants won’t happen until February 2023.

    5
    July 29, 2022
    • Bart Yee said:
      @Gregg said:
      ”In the near term, with RSI nearing 70 (over bought territory) I think it’s quite possible that AAPL has peaked and could flatten, or possibly pull back starting Monday.”

      Agree, it’s been a nice move, one that foretells a further leg up. But a lot of thinking is going on this weekend about holdings in AAPL, investors may be looking for 2nd half expenses and cash flow, so there may be selling pressure come Monday morning or afternoon. Those with IRA RMD’s may see some selling opportunities while things are still a bit quiet.

      Distractions may be end of summer vacations or plans. Here in SoCal, gas has dropped to below $5.00, a minor miracle, and around the country, similar energy easing (while oil companies heavily profit, so it has been in price booms) may give a brief respite to inflationary worries. But food has spiked, partly because of transportation and fuel costs. We’ll see if consumers will be paring down demand for even basics.

      0
      July 30, 2022
  4. Bart Yee said:
    Loved the quote of Cook on whether Mac Rev shortfall was due to lessening demand?
    “We didn’t have enough product to test demand”.

    I suspect a lot of orders will get fulfilled this quarter. If supply issues ease as suggested in the call, could be building nice momentum into this quarter’s numbers, irregardless of AAPL stock movement.

    4
    July 29, 2022
    • Fred Stein said:
      Yes Bart.

      Gotta love Tim’s polite, matter of fact, answers that deflect these kinds of gotcha questions. One of his many talents.

      1
      July 29, 2022
  5. Gregg Thurman said:
    Performance wise Apple’s fiscal 3rd quarter is historically the worst of the year. In terms of % of annual revenue generated by quarter, I believe FY2022 will be no different than prior years.

    This means, helped along by backlog of Macs, iPads, (back to school) and iPhone 14 launch FQ4/2022 will perform admirably.

    Whether you are a short term trader, or a buy and holder, now is the time to buy.

    4
    July 29, 2022
  6. Miguel Ancira said:
    I have been sayibg ‘Services’ for about 5 years now.
    It was about 1/2 of iPhone sales. (5 years ago it was about 1/4 or 1/5).
    All of the old phones we trade in go to Indonesia, India, Vietnam….and they get hooked on the ecosystem.
    Services will be the dominant income stream going forward, and look out for Financial.

    3
    July 29, 2022
    • Gregg Thurman said:
      and look out for Financial.

      Traditionally people went to a gothic style building representing strength and stability for all of their financial needs.

      But then, about 20 or so years ago, banking began to change. Fading away was the formality of banking. An evolution began wherein customers had less and less need to go to a bank, culminating to the point where they don’t go to the “bank” any more. It’s all digital and wireless.

      Apple has smartly, and slowly, been planting seeds of financial services using the preferred mobile devices of those with higher earnings. People have come to trust Apple’s secure and privacy protecting OS and hardware products, and don’t have the time to fool with going to a bank.

      Over the next 10 years, if not sooner, Apple will offer financial services just short of requiring federal registration as a “bank”, but without the overhead of physical, regulated banks. And just like iPhone, iPad, Apple Watch and Air Pods, it will dominate the higher tier consumer market. “Banks” will evolve into serving the enterprise almost exclusively.

      I have no way to estimate the size of the ‘Apple finance’ market, but it will be huge. More importantly, excepting for December shopping, it won’t be seasonal, looking more like subscription income, and earning multiples accordingly.

      6
      July 29, 2022
  7. Steven Philips said:
    So what’s with sour grapes Morningstar?
    It SHOULD be “First star to the right and straight on til morning.”

    1
    July 29, 2022
    • Bart Yee said:
      Well, at close today, here’s the metrics:

      STOCK – YTD – 1 YR – Market Cap (USD) – PE multiple
      AAPL -8.5%, +11.6%, $2.64T, 26.42
      MSFT -16.5%, -2.0%, $2.10T, 29.09
      (note cap gap widened to $540B)
      GOOG -19.4%, -14.6%, $1.52T, 20.11
      AMZN -19.1%, -25.0%, $1.37T, 61.90
      TSLA -15.6%, +31.6%, $931B, 101.07
      Samsung -21.6%, -22.3%, $317B, ~9.00
      META -52.7%, -55.6%, $431B, 11.32
      NFLX -62.7%, -56.3%, $100B, 18.85
      NVDA -38.2%, -7.6%, $453B, 48.71
      INTC -29.5% -32.4%, $148B, 6.03 (no typo!)
      Xiaomi (HK) -34.7%, -52.4%, $39.2B, 13.9
      ARKK -52.3%, -62.9%

      0
      July 29, 2022
      • David Drinkwater said:
        One takeaway from this is that PE ratio is not one of Apple’s problems. It took a little while to tbalize this in Excel (it’s a default, I know, I know …)

        But also, overall, compared with its peers, Apple is doing really, really well, and tht in the June Quarter, which is usually among the softest.

        And the supply chain constraints, etc., etc., …

        I feel very comfortable disagreeing with my account manager in New York and saying, “no, I do not need to limit my exposure to AAPL (~33% of my net portfolio), and I do not want to use AAPL as a vehicle for charitable giving.”

        On to the technical semiconductor discussions in a moment.

        0
        July 30, 2022
  8. Ted Kluger said:
    I love this one:
    Abhinav Davuluri, Morningstar . . . “Narrow-moat Apple–”
    That’s as far as I got.

    5
    July 29, 2022
  9. Dan Scropos said:
    Where is Rod Hall’s commentary? Hold his feet to the fire.

    2
    July 29, 2022
  10. Bart Yee said:
    We should note Morningstar has felt AAPL overvalued for a while.
    Quotes from their latest report I sent to PED.
    On Fair Value, current price target from Jan, 2022:
    Fair Value and Profit Drivers Abhinav Davuluri, CFA, Sector Strategist, 27 Jan 2022
    “Our fair value estimate is $130 per share. Our estimate implies a forward GAAP P/E ratio of 22 times. In fiscal 2022, we expect total revenue to be up 7% thanks to strength in iPhone and services sales. We expect services to grow at a 9% CAGR over the next five years, while wearables, home, and accessories revenue should also generate strong high-single-digit growth. Following a robust growth year in fiscal 2021, we believe iPhone sales will record modest growth, with total revenue growth in the low- to mid- single digits”

    On Capital Allocation:
    “We think Apple’s recent level of technological innovation has been adequate, though it has likely faced an unreasonably high bar for expectations after the debut of the iPhone. Many of the firm’s recent innovations have been in software and services within iOS such as Apple Pay, as well as under-the- hood improvements in semiconductors, rather than revolutionary, ubiquitous devices like the iPod or iPhone.“

    Morningstar’s METRICS & Fair value Forward PE & Price target, current PE & closing price today:
    AAPL 22, $130, 26.4, $162.51
    GOOGL 28, $169, 19.55, $116.32
    MSFT 36 (!), $352 (!), 29.09, $280.74

    So apparently AAPL is devalued because it’s a (successful) hardware company subject to hardware sales and demand slowdown, vs. being software and ad companies that have many more subscriptions based revenue opportunities among other things.

    Wrong!

    3
    July 29, 2022
    • David Drinkwater said:
      On Capital Allocation:
      “We think Apple’s recent level of technological innovation has been adequate, though it has likely faced an unreasonably high bar for expectations after the debut of the iPhone. Many of the firm’s recent innovations have been in software and services within iOS such as Apple Pay, as well as under-the- hood improvements in semiconductors, rather than revolutionary, ubiquitous devices like the iPod or iPhone.“

      “We think Apple’s recent level of technological innovation has been adequate.”

      Do WHAT?

      “under-the- hood improvements in semiconductors, rather than revolutionary”

      Do WHAT?

      Has this guy not heard of the M-Series chips? By now he is surely aware of the A-Series chips, right? Or the S-Series Chips, the W-Series Chips, the U1 Chip ….?

      I am not a chip designer, but I work with chip designers, and Apple is doing a great job cranking out new chip designs. Sure, some are iterative. But some are also most decidedly revolutionary. And it’s not just logic! It’s sensing and transforming sensed data into information. So far, I would call most of that sensing. If Apple were to make a real move into actuating: “Katy, bar the door!”

      Perhaps it is better to be damned by idiots, but this is just a silly quotation block. I would be embarrassed for my company if I published something like this.

      1
      July 30, 2022

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