Apple (AAPL) Q3 Earnings: What to Expect

Close-up of Apple iPhones on display
Credit: Edgar Su / Reuters - stock.adobe.com

Apple (AAPL) stock has gone on an impressive run, rising about 11% over the past thirty days, more than doubling the 4% rise in the S&P 500 index. But the tech giant was merely catching up as its recent gains have added to 12% rise year-to-date, compared with the 17.4% increase in the S&P has produced. But Apple’s gains are only the beginning, according to analyst David Vogt of UBS.

The iPhone maker is set to report third quarter fiscal 2021 earnings results after the closing bell Tuesday. Ahead of the results, Vogt cited increased demand for iPhone unit sales, thus raising his twelve-month price target on Apple stock from $155 to $166. From current levels that target assumes additional premiums of close to 15%. Unswayed by the prolonged chip shortage, Vogt upped his forecast for revenue and EPS from $71.3 billion and 95 cents to $74.7 billion and $1.01, which is about 1% above Street consensus.

Believing current-quarter and full-year estimates are too conservative, Vogt also boosted Apple’s fiscal 2021 iPhone unit estimate from 225 million to 227 million, while raising his FY22 forecast from 220 million to 225 million. In other words, Apple’s hardware business has already bottomed. But Apple is more than just a hardware company. The company’s Services business, which now accounts for some 25% of total revenue, surged some 27%, helping Apple to smash Q2 revenue by more than $12 billion. Can the strong trend continue? Investors are hoping so on Tuesday.

Investors will focus on the company’s guidance for any clues about how Apple’s new devices will perform, particularly the refreshed iMac and iPad Pro devices that will be powered by the company's self-designed M1 chip. There have also been rumors about an electric vehicle, dubbed Apple Car, which may also be an area of focus. Reports suggests Apple can begin production of the vehicle as early as 2024. While Apple hasn’t confirmed the company’s car ambitions, investors will nonetheless want to know whether it is realistic or just hype.

In the three months that ended June, Wall Street expect the Cupertino, Calif.-based tech giant to earn 98 cents per share on revenue of $77.1 billion. This compares to the year-ago quarter when earnings came to 64 cents per share on revenue of $58.31 billion. For the full year, ending August, earnings are expected to rise 58% year over year to $5.18 per share, while full-year revenue of $354.61 billion will rise 29.2% year over year.

We are still several quarters aways before the aforementioned products, including the car make a dent on the revenue line. Until then, Apple’s iPhone sales will remain the company’s bread-and-butter revenue generator. That’s not a bad problem to have, given strong demand for the 5G-enabled iPhone 12, which despite being launched slightly later than usual due to the pandemic, has been a huge success by all metrics, beating Street iPhone sales sales estimate by about $4 billion.

In Q2, Apple delivered revenues of $89.6 billion and earnings per share of $1.40, beating on both metrics, thanks to double-digit year-over-year revenue increases in each revenue category. The company beat on every business segment. Q2 iPhone revenue of $47.94 billion beat estimates of $40.8 billion. Remote-work and remote-learning tailwind also boosted sales in MacBooks ($9.1 billion vs. $6.9 billion estimate) and iPads ($7.8 billion vs. the $5.79 billion consensus).

Meanwhile, Apple continues to expand its profit margins, erasing concerns that the 5G iPhones would yield high production costs. Assuming these strong trends remain positive, Apple stock — which currently trades at only seven time forward 12-month sales — will continue to rise.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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