In what is always one of the most-watched reports on Wall Street, Apple (NASDAQ:AAPL) reports results for its most recently completed fiscal quarter on Tuesday, July 30 after the close of U.S. markets, and they’re likely to move Apple stock. Analysts are expecting the iPhone maker to post earnings of $2.12 per share for the quarter ended in June, down from $2.34 a share a year earlier.
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Entering Monday, Apple was up 28.43% year-to-date, putting it well ahead of the S&P 500 and about 460 basis points ahead of the Nasdaq-100 Index.
The stock seemingly draws a crowd of bullish sell-side analysts, who are, broadly speaking, enthusiastic about Apple stock heading into next week’s earnings report.
For example, Morgan Stanley’s Katy Huberty raised her price target on Apple to $247 from $231 in a note out Monday.
“Investor sentiment remains negative despite improving iPhone and services data points,” said Huberty, who has an “overweight” rating on Apple stock.
Focus 0n 5G
When it comes to traditional telecom equities, chip manufacturers and handset makers like Apple, the new 5G boom is something analysts and investors want to hear more about. Specifically, market participants want to hear positive 5G news.
Regarding Apple stock, there are split views regarding whether loyal Apple customers, of which there are plenty, will rush to upgrade to 5G-capable phones when that system is made more widely available next year. The concern is relevant because many Apple fans upgrade their iPhones because of new features specific to the phones themselves, not so much because of new telecom infrastructure.
“We have low expectations for the impending iPhone cycle (and the one beyond) and do not expect Apple’s new services to add materially to earnings,” said Nomura Securities analyst Jeffrey Kvaal in a recent note. “We’re not yet convinced 5G will lift replacement rates even with the 2020 iPhones. We believe consumers are unlikely to rush to upgrade as 4G speeds are more than capable.”
Again, the views on Apple and 5G are split as highlighted buy Huberty’s comments on that very subject.
5G potentially has “a more meaningful impact on iPhone shipment growth as compared to the iPhone X, which was launched at a time when replacement cycles were lengthening due to the shift away from handset subsidies,” notes the Morgan Stanley analyst.
There are some reasons why hardcore Apple fans will rush to upgrade to 5G when those iPhones become available. Notably, 5G download speeds are expected to be nearly triple those on 4G phones. The rub here is that some of those buyers could easily skip this year’s upgrade cycle and just wait for 5G in 2020. That thesis holds more water when noting Apple has already acknowledged the most significant sprucing up this year’s iPhones will be on the camera and not much else.
Bottom Line on Apple Stock
The fact that Apple enters its earnings report attractively valued (it’s trading at just over 16x forward earnings) implies a noticeable discount to the broader universe of large-cap tech growth stocks.
With 5G not available for another 12 to 15 months, a lot of the post-earnings reaction in Apple stock will boil down to the company’s guidance. To the point, Apple stock could rally if the company offers up encouraging commentary on iPhone sales in the second half of this year, which will tell investors buyers are excited for new iPhones even without 5G.
Additionally, it would be helpful to Apple bulls if the company would highlight some effort to focus on something other than the higher-end of the smartphone market because there are lots of customers in the middle that feel priced out of iPhones.
Todd Shriber does not own any of the aforementioned securities.
