Apple Q4 earnings preview: Where next or AAPL stock?

When will Apple release Q4 earnings?

Apple will release fourth quarter earnings after the markets close on Thursday October 27. A conference call will be held by management on the same day at 1400 PT (1700 ET).

Apple Q4 earnings consensus

Wall Street forecasts Apple will report a 6.4% year-on-year rise in revenue in the fourth quarter to $88.69 billion and a 1.9% increase in diluted EPS to $1.26.

Apple Q4 earnings preview

All eyes are on the popularity of Apple’s new iPhone 14 this quarter. Apple launched the new model in September and it hit the shelves earlier this month. Attention will be on how initial demand has fared as this will set the tone for the first quarter that covers the busy holiday shopping period, which tends to be the busiest quarter for sales. We can see below that the iPhone, as well as the Services division that homes its apps and subscription services, will drive topline growth in the fourth quarter, although the latter is expected to see sales slow for a fifth consecutive quarter. Demand for other hardware looks set to remain soft:

(Source: Estimates from Bloomberg)

Notably, Apple will enjoy an extra week of iPhone sales in the quarter thanks to the earlier launch of the latest model. Analysts remain confident that the Pro models, which received the bulk of the upgrades, have proven popular and will lift average selling prices. Bigger questions remain over volumes and over the level of demand for other models, such as the lower-priced Plus. The Information reported this month that Apple has cut production of the iPhone 14 Plus and told at least one manufacturer in China to stop producing components for the model.

Bloomberg reported last month that Apple has backed-off from plans to increase production of the iPhone 14 by up to 6 million units in the second half of 2022 after an anticipated surge in demand failed to materialise, putting iPhone 14 shipments on course to come in flat with what we saw with the iPhone 13.

In terms of geography, Wall Street believes strong demand in the US will be the biggest contributor to sales growth, followed by China, which will be closely watched given signs of economic weakness. Bloomberg Intelligence analyst Anurag Rana has warned sales in China could grow less than 2% this quarter, far slower than the 7% growth pencilled in the consensus:

(Source: Estimates from Bloomberg)

Although Wall Street’s forecasts for this quarter point toward tepid growth compared to what investors have become accustomed to, they do suggest we will see a reacceleration in sales following the lacklustre growth seen in the last quarter and a return to earnings growth after a rare decline three months ago.

It is important to flag that Apple is still facing tough comparatives. This time last year, Apple posted a 29% jump in sales and saw EPS pop 70%. Plus, the strong US dollar will severely crimp its topline this time around while rising costs, which are expected to be some 14% higher than last year, are also continuing to limit progress at the bottom.

We could see Apple wield its large hoard of cash and accelerate share buybacks, which would not only allow it to take advantage of the selloff this year but also provide more support to the bottom-line by artificially improving earnings per share by reducing the number of shares in issue.

Apple has not been providing an outlook but commentary on the new financial year will be closely watched. Wall Street believes 2023 will be even tougher than the recently ended one considering estimates suggest revenue will grow less than 5% in the new financial year and that Apple will deliver less than 6% growth in adjusted EPS.

‘While still early days in the iPhone 14 product cycle, we do expect the weaker consumer spending environment to impact the earnings trajectory, and it could drive softer than consensus earnings in some of the later quarters in FY2023,’ JPMorgan warned this month.

Where next for AAPL stock?

Apple shares have been trending higher since hitting a 15-week low on October 13, with the stock today on course to find higher ground for a fourth consecutive session. The stock is now testing new October-highs.

We could see Apple shares climb back above the $150 mark if this momentum continues, considering this has proven to be a reliable level of both support and resistance on several occasions since mid-2021. Any move above here would bring the moving averages back into play, with the 200-day sma currently aligned with the September 2021 high and the four-month low we saw back in March 2022.

The 44 brokers that cover the stock have an average target price of $183.60, implying there is almost 25% potential upside from current levels and that the stock can test new all-time highs. Notably, that target has held steady over the last few months when other members of Big Tech have seen their targets lowered.

We should see $138 hold as a floor should the stock come under renewed pressure. This must hold to avoid bringing the 15-week low of $134 back into play. The one year seen in June of $130 would then be back on the radar.

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