Why Apple Shares Could Crush the Market This Earning Season

apple (AAPL -3.73%) It held up despite a sell-off in tech stocks this year, with iPhone shares dropping just 10% in 2022 compared to a 25% drop in the previous year. Technology sector in Nasdaq 100 index.

However, investors can expect Apple shares to get a good boost when it releases its fiscal 2022 second quarter results for the three months ending March 26, on April 28. Let’s take a look at what’s expected from Apple in the second quarter and why the stage looks set for another round of strong numbers from the tech giant.

Strong iPhone Demand Can Help Apple Exceed Expectations

When Apple released its first-quarter financial results in January of this year, the company decided not to issue formal guidance, citing “the continuing uncertainty around the world in the near term.” However, CFO Luca Maestri noted on the company’s January earnings conference call that Apple “can deliver solid year-over-year revenue growth and record March quarter revenue despite significant supply constraints.”

Maestri also added that supply chain constraints in the March quarter are likely to be less than what the company experienced during the first quarter of its fiscal year, which ended in December. That explains why Wall Street expected Apple to generate $94 billion in fiscal second-quarter revenue — a 5% increase from the previous year’s record $89.6 billion in revenue.

At first glance, the annual increase may seem a bit slow. However, investors should not forget that the late launch of the iPhone 12 in the first quarter of fiscal year 2021 (the period ending in December 2020) means that the demand for the device has moved into the second quarter of 2021 (March 2021). For comparison, iPhone 13 models have been on sale since the last quarter of fiscal 2021, so Apple faces tougher year-over-year comparisons.

However, Maestri’s comment is an indication that demand for Apple products has remained strong in the last quarter. Even analysts expect something similar as the upper end of Apple’s second-quarter revenue estimate is $100.4 billion, which could translate into double-digit year-over-year growth for the company.

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It wouldn’t be surprising to see Apple reach the higher end of Wall Street’s guidance. Morgan Stanley Analyst Katie Huberty expects a 10% year-over-year increase in iPhone shipments in the second quarter, driven by strong demand for its iPhone 13 lineup. The company shipped an estimated 60 million iPhones in last year’s quarter, suggesting it may have shipped about 66 million devices. iPhone this time.

Huberty also raised its estimate of the iPhone’s average selling price (ASP) to $878 from the previous estimate of $848. The increase in Apple’s iPhone ASP can be attributed to a more favorable sales mix. According to Hubertie, the iPhone 13 accounted for 69% of Apple’s smartphone sales last quarter, with another 16% of the iPhone 12 lineup. So it’s estimated that 5G devices accounted for 85% of Apple iPhone sales last quarter. This should have had a positive impact on the company’s earnings, as it has amazing pricing power in the era of 5G smartphones.

Assuming shipments of 66 million units, Huberty estimates that ASP is $58 billion in iPhone revenue for the second quarter, an increase of nearly 21% over iPhone revenue in the same period last year of $47.9 billion. With the iPhone the largest source of Apple’s revenue, producing 58% of its top line in the first quarter of fiscal year 2022, a strong showing from this product line could help Apple achieve better than expected results.

Analysts expect the company to report earnings of $1.43 per share, which is a small jump from last year’s $1.40 per share. However, the combination of higher volumes and improved pricing should reflect positively on Apple’s bottom line and help it report stronger numbers.

More reasons to be optimistic

Outside of the iPhone, Apple’s Mac business and services are also expected to help the company’s growth. Mac shipments are estimated to have reached 7.2 million last quarter, topping analysts’ estimates of 6 million units. As a result, Apple’s fiscal second-quarter Mac revenue could reach $9.5 billion, according to Huberty, compared to $9.1 billion in the same period a year earlier.

Meanwhile, the services business is estimated to have reported nearly $20 billion in revenue last quarter, which may translate into an 18% increase over the same quarter last year. The increase in Apple’s installed customer base thanks to higher sales of its devices and strong user engagement has been a tailwind for the services business, and that trend appears to have continued into the last quarter.

It is also worth noting that the Services business carries a much higher gross margin compared to the products sold by Apple. So, the impressive growth on the service front should have a positive impact on the company’s earnings.

There are several reasons to believe that Apple is heading into another record quarter. Stronger-than-expected numbers could send tech stocks higher, which is why investors who are still on the sidelines may want to buy Apple before it gets too expensive.

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