The outlook for technology companies will become clearer soon, as big tech companies Alphabet (GOOGL – Free Report) , Amazon (AMZN – Free Report) , and Apple (AAPL – Free Report) are all set to report earnings on Thursday, February 2.
Investors are on edge for better-than-expected guidance after Microsoft’s (MSFT – Free Report) outlook was underwhelming despite the company beating its fiscal second-quarter earnings expectations last week.
Let’s see what’s in store for Apple stock specifically heading into its quarterly report this week.
Momentum
As we begin the new year, tech stocks are off to their best start in over 20 years with the Nasdaq up +10% in January and Apple stock has been on par with the technology indexes rally.
After a brutal 2022 for tech stocks, recent rallies were supported by December CPI numbers suggesting inflation is beginning to ease. This largely reflects why investors are hoping that Apple along with Microsoft’s other big tech peers can offer better guidance and keep the momentum going in the broader technology sector.
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Quarterly Estimates
The Zacks Consensus for Apple’s fiscal first quarter earnings is $1.93 per share which is on par with the Most Accurate estimate indicating Apple should reach expectations. Earnings are expected to be down -8% year over year compared to Q1 2022 EPS of $2.10 per share. First-quarter sales are forecasted to be $121.21 billion, down -2% from the prior year quarter.
Apple’s fiscal 2023 earnings are now projected to be up 1% and pop another 8% in FY24 at $6.68 per share. Earnings estimate revisions have slightly trended down over the last quarter. On the top line, sales are forecasted to rise 2% in FY23 and jump 5% in FY24 to $425.08 billion.
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Services & iPhone Growth
Among Apple’s overall top and bottom-line growth, Wall Street will be monitoring the individual growth and expansion of Apple’s paid subscription services along with its traditional source of income from iPhone revenue.
The growth of Apple’s paid services, in particular, has been very intriguing and a strong quarter in core product categories could lead to analysts hiking their price target for AAPL stock if the company is also able to offer positive or better-than-expected guidance in its outlook.
During Q4, revenue from Apple’s Services segment was $19.19 billion, up 5% from Q4 2021. This helped Apple achieve an overall record fourth quarter in terms of revenue and EPS with iPhone sales up 9% year over year during Q4 at $42.63 billion despite both segments missing analysts estimates.
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Historical Performance & Valuation
Over the last year, Apple stock is down -17% to underperform the S&P 500’s -13% but slightly top the Nasdaq’s -19%. In the last decade, Apple’s +788% has largely outperformed the broader indexes and also topped its big tech peers.
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Trading around $144 per share and 23.1X forward earnings Apple stock trades 40% below its decade high of 38.6X and closer to the median of 15.7X. Apple’s PEG ratio of 1.8 is on par with the benchmark and also below its decade-long high of 2.98 and close to the median of 1.42 with the industry average at 2.51.
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Bottom Line
Apple’s long-term growth prospects remain attractive, with the stock landing a Zacks Rank #3 (Hold) going into its fiscal Q1 earnings. More near-term upside will largely depend on the guidance. For now, holding on to shares of AAPL at their current levels could continue to be rewarding especially if the company can continue growing its paid subscription services.
