Why Apple Stock Could Crush the Market This Earnings Season

Apple (AAPL -3.66%) has held its own despite a severe sell-off in tech stocks this year, with shares of the iPhone maker falling just 10% in 2022 compared with a 25% drop in the Nasdaq-100 Technology Sector index.

However, investors can expect Apple stock to get a nice boost when it releases its fiscal 2022 second quarter results for the three months ending March 26 on April 28. Let’s see what is expected from Apple in the second quarter and why the stage seems set. for another round of solid numbers from the tech giant.

Strong iPhone demand could help Apple beat expectations

When Apple released its fiscal first quarter results in January of this year, the company decided not to issue formal guidance, citing “continued near-term uncertainty around the world.” However, CFO Luca Maestri noted on the company’s January earnings conference call that Apple could “achieve strong year-over-year revenue growth and set a revenue record in the March quarter despite major 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 fiscal first quarter, which ended in December. This explains why Wall Street expects Apple to deliver $94 billion in fiscal second quarter revenue, a 5% increase from the prior year period’s record revenue of $89.6 billion.

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

Still, Maestri’s comment is an indication that demand for Apple products remained strong last quarter. Even analysts are anticipating something similar, as the top end of Apple’s second-quarter revenue estimate sits at $100.4 billion, which would translate to double-digit year-over-year growth for the company.

Image source: Getty Images.

It won’t be surprising to see Apple reach the top end of Wall Street’s guidance. Morgan Stanley Analyst Katy Huberty forecasts a 10% year-over-year increase in iPhone shipments in the second quarter, fueled by strong demand for the iPhone 13 line. The company had shipped an estimated 60 million iPhones in the prior year quarter, indicating that it may have shipped around 66 million iPhones this time.

Huberty also raised its iPhone average selling price (ASP) estimate 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 Huberty, the iPhone 13 accounted for 69% of Apple’s smartphone sales last quarter, with another 16% coming from the iPhone 12 lineup. Thus, 5G devices are estimated to have accounted for 85% of sales. Apple’s iPhone sales last quarter. That should have had a favorable impact on the company’s bottom line, as it enjoys impressive pricing power in the age of 5G smartphones.

Assuming shipments of 66 million units, Huberty’s estimated ASP points to $58 billion in iPhone revenue for the second quarter, up nearly 21% from the prior year’s iPhone revenue of $47.9 billion. With the iPhone being Apple’s biggest revenue earner, producing 58% of its top line in the first quarter of fiscal 2022, strong performance from this product line could help Apple deliver better-than-expected results.

Analysts expect the company to report earnings of $1.43 per share, which would represent a small jump from the previous year’s figure of $1.40 per share. However, a combination of higher volumes and improved prices should positively affect Apple’s results and help it report stronger numbers.

More reasons to be optimistic

Beyond the iPhone, Apple’s Mac and services businesses are also expected to help the company grow. Mac shipments are estimated to have reached 7.2 million last quarter, ahead of analysts’ estimate of 6 million units. As a result, Mac revenue in Apple’s fiscal second quarter could hit $9.5 billion, according to Huberty, compared with $9.1 billion in the prior year period.

Meanwhile, the services business is estimated to have posted nearly $20 billion in revenue last quarter, which would translate to an 18% increase from the prior year quarter. The increase in Apple’s installed customer base thanks to higher sales of its devices and strong user engagement have been tailwinds for the services business, and the trend appears to have continued in the last quarter.

It’s also worth noting that the services business has a significantly higher gross margin compared to the products that Apple sells. Therefore, impressive growth on the services front should have a positive influence on the company’s earnings.

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

Add Comment