Apple Earnings Preview: Supply-Chain Crisis Weighs, But Demand Remains Strong

Reports Q2 2022 results on Thursday, April 28, after the market close
Revenue Expectation: $94.15 billion
EPS Expectation: $1.43

Shares of iconic iPhone-maker Apple (NASDAQ:AAPL) have proved much more resilient than those of other technology titans amid the current market turmoil. The Cupertino, California-based behemoth has continued to improve sales of its smartphones, computers, and tablets as well as wearables, throughout the quarter despite global supply-chain hurdles, benefiting from a flood of new products, including the iPhone 13, the Watch Series 7, and updated Mac computers.

As a result, the company is currently the best-performing year-to-date mega-cap name in the group known as FAANG. The stock closed Tuesday at $156.80.

AAPL Weekly Chart

Still, Apple’s quarterly earnings report tomorrow after the market close promises to test that safe-haven status. There are numerous risks to that: the resurgence of COVID-19 and related lockdowns in China where the company’s largest part-supplier resides, along with skyrocketing shipping costs and labor shortages which continue to strain the global supply chain.

In March, Mark Liu, Chairman of Taiwan Semiconductor Manufacturing (NYSE:TSM) noted that China’s extensive lockdowns hurt demand for PCs, TVs, and smartphones. Apple supplier Foxconn halted operations at its Shenzhen sites for a few days in March due to a government-imposed lockdown on the tech hub.

Wall Street analysts now expect the world’s largest company by market capitalization to report a more than 5% surge in sales compared with last year’s same period, totaling $94.15 billion. They also forecast that Apple’s profit could fall slightly to $1.43 a share from the prior-year period’s pandemic-boosted results.

In a note to clients, JPMorgan said that sales of the company’s flagship iPhone might disappoint investors during this week’s earnings report. According to the note:

“While our prior revision was driven by a modest haircut to both iPhone and Services revenue, the latest revision is completely on account of preliminary smartphone data for C1Q22, which has tracked below expectations as per industry analyst estimates, partially offset by better-than-expected PC shipments for C1Q22.”

Super Growth Cycle

We must note that the challenges cited above are short-term in nature. They shouldn’t hide the fact that Apple has entered another super growth cycle, fueled by its latest iPhone models and soaring demand for its wearables and other gadgets and services.

Furthermore, the company has sequentially delivered better-than-expected earnings results.

That’s perhaps why most of the 44 analysts polled by Investing.com recommend buying Apple stock.

AAPL Consensus Estimates

Source: Investing.com

Their consensus 12-month price target of about $193.08 implies a 23.1% upside potential.

JPMorgan, which trimmed its price target on Apple to $205 per share from $210, continued to maintain its overweight rating despite some risks to the consensus forecast. To justify its price target, the bank said:

“We remain above consensus in our out-year revenue and earnings forecast, led by our continued expectation for better than anticipated growth in Products and margin and earnings trajectory on the back of robust growth in Services. Our positive view on the shares longer-term leads us to maintain our Overweight rating.”

Bottom Line

Apple may disappoint some shareholders by not producing a blockbuster quarter due to some drag on its growth from supply-chain disruptions and lockdowns in China.

Nevertheless, we believe any post-earnings weakness is a buying opportunity for long-term investors, given the robust demand for Apple’s products and services.

Source: Investing.com