What To Expect From The iPhone Maker

The consumer electronics industry has experienced instability in spending, but Apple Inc. is set to release its fiscal second-quarter earnings report, which will reveal how its products have fared in a world of tighter budgets. The report will follow Qualcomm Inc.'s indication of weak demand for smartphones. 

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Additionally, investors will closely watch how much Apple executives allocate to shareholders, as the company is expected to update its capital-return policies alongside its March-quarter report, potentially including tens of millions of dollars in additional buybacks and a further dividend increase.

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According to analysts surveyed by FactSet and Estimize, Apple is expected to post fiscal second-quarter earnings per share of $1.43 and $1.48, respectively. The FactSet consensus calls for $92.9 billion in revenue, while those contributing to Estimize expect $93.8 billion. 

Analysts predict that iPhone 3 and iPad revenue will decline, with Mac revenue projected to drop sharply. However, the Services category is expected to show growth, with revenue projected to increase to $21 billion from $19.8 billion.

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Apple shares have gained following four of the company's past five earnings reports, with the stock gaining about 29% so far this year. Of the 41 analysts tracked by FactSet who cover Apple shares, 32 have buy ratings, seven have hold ratings, and two have sell ratings, with an average price target of $172.22.

The March quarter tends to be quieter from the perspective of product sales, as Apple typically announces new iPhones in the fall. Nonetheless, the report will serve as a barometer for the health of electronics spending. 

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Cowen & Co. analyst Krish Sankar noted that Apple is facing moderate headwinds in its hardware businesses, while UBS analyst David Vogt highlighted “notably soft” iPhone sell-through in the U.S. and Europe, but accelerated trends in China.

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Apple's forward-looking commentary could be a big driver of the stock's movement following the report, as the company has not offered a traditional forecast since the pandemic began. 

JPMorgan's Samik Chatterjee suggested that investors might look for assurance and visibility into limited downside, even if it comes down to assuring that revenue declines do not deteriorate further than the -5% moderation that investors are already expecting.

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Despite the challenging macroeconomic environment, Apple is viewed as a relatively safe play, with investors favoring flight-to-safety positioning. Therefore, the company's worsening macro sentiment and limited downside could triumph on the fundamentals. 

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Finally, investors will eagerly anticipate Apple's dividend and buyback update, with Morgan Stanley's Erik Woodring predicting a $90 billion increase to the share-repurchase program and a 5% dividend hike, matching what the company did last year.

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