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iPhone Sales are Steady Amid Headwinds: Here's Why Wall Street is So Bullish on the iPhone Maker's Thursday Earnings

AInvestThursday, Feb 1, 2024 2:12 am ET
2min read

Apple is set to announce its fiscal first-quarter earnings after the market closes on Thursday. There have been concerns that the iPhone 15 lineup has not been well received by consumers and overall consumer electronics sentiment remains low, leading to a more than 4% drop in the stock this year after it briefly surpassed the $3 trillion mark. However, Wall Street is more optimistic this time.

The consensus expects that Apple will report sales of $118.3 billion, with a diluted EPS of $2.1, representing 1% and 12% year-on-year growth respectively. The focus will also be on iPhone sales, particularly in China, the expansion of its high-margin Services business, and feedback on this week's launch of the Vision Pro.

Apple should deliver in-line results on Thursday, mainly driven by iPhone growth. Therefore, the focus is shifting to guidance, ongoing regulatory issues, and the strength of the App Store, according to Goldman Sachs.

The bank expects iPhone revenue to have grown by 3% year-on-year thanks to the iPhone 15 lineup, but also anticipates double-digit revenue declines in iPad and Wearables, Home, and Accessories due to tough comparisons from last year that benefited from new product launches.

Meanwhile, the bank projects an 11% growth in Apple's Services revenue, driven by recent price increases and a boost in App Store sales.

We'd expect Services revenue to benefit from increasing penetration of all services, particularly iCloud+ as data consumption growth outpaces device storage and AppleCare+ as devices become more expensive and the mix of direct sales (and opportunities to sell AppleCare+ directly) increases, the bank wrote.

Goldman Sachs has rated Apple a Buy with a $223 price target, implying a potential 21% upside.

On the other hand, JPMorgan believes that profit results will have a larger impact on Apple's stock price than revenue. The bank suggests that the premiumization of the iPhone, along with tight cost management, is improving Hardware margins, and the shift to Services will further contribute to the margin improvement. This could, in turn, drive the gross margin guidance of 45%-46% higher for F1Q24.

With the robust sell-in volumes in F1Q24, current expectations from investors have moved to a modest beat led by robust iPhone numbers, even though accompanied on the flip-side by an above-seasonal iPhone decline into F2Q, the bank wrote.

JPMorgan rates Apple as Overweight with a $225 price target, implying a 22% upside potential.

Among Wall Street firms, Wedbush is one of the most optimistic about Apple's earnings on Thursday. Analyst Dan Ives believes that Apple is likely to surpass its first-quarter revenue and profit estimates even amidst growing investor worries about iPhone sales.

Ives said that the main focus will be on the iPhone and the Services revenue, which are both expected to have performed well during the holiday quarter.

The big focus on the Street naturally will be on iPhone and double-digit growth for Services revenue, which we both believe performed relatively well during the holiday quarter as the $68 billion iPhone revenue target and $23 billion Services estimate are achievable/exceedable, Ives said in a note on Wednesday.

And iPhone sales remain steady in China even as competition from Huawei increases.

So far iPhone demand has been stable in China with some pockets of relative strength on the high end around upgrade opportunities, along with some isolated weakness in the third-party retail channel. We estimate ~100 million iPhones are in the window of an upgrade opportunity in China which has been a tailwind helping offset some of the Huawei competitive pressures in mainland China, Ives said.

Wedbush has rated Apple as Outperform with a $250 price target, suggesting a 36% upside potential.

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