Apple stock (NASDAQ:AAPL) has recently suffered due to the weakening macroeconomic outlook and a random drop in smartphone production figures. Investors are now cautiously awaiting Apple’s Q4 earnings for additional information, not just for Apple, but for the overall economy.
I believe Apple’s fourth-quarter numbers will be better than expected – or feared. Investors should remember that LVMH (OTCPK:LVMUY) has announced robust consumer demand in the United States, Japan, and, most unexpectedly, Europe. Furthermore, digital search statistics do not indicate declining interest in Apple stock. Bloomberg reports that the manufacturing slowdown will have little to no impact on Apple’s Q1 and Q2 2023 results. I give a ”Buy” rating for Apple stock.
Earnings Forecast
According to the Bloomberg Terminal, 29 analysts have given their projections for Apple’s fourth-quarter results as of October 12. Total sales are predicted to range between $85.14 billion to $92.80 billion, with an $88.85 billion average projection. As a result, the dispersion is relatively broad. If the average is used as the anchor, Apple’s Q4 sales are expected to increase by 6.6% compared to the same quarter in 2021. EPS forecasts range from $1.13 to $1.35. The average is $1.27, implying a 2.3% increase year over year.
Notably, quarterly profit estimates (EPS revisions) have flattened in recent months, with little downward/upward revision since December 2021.
Apple will release its fourth-quarter earnings report on October 27, after the market closes.
Reduced iPhone Sales?
Despite Apple’s extensive diversification of revenue exposure, iPhone sales still account for around 50% of total top-line revenue and possibly even more of Apple’s bottom-line income. As a result, Apple’s iPhone sales volume will be critical.
Following a Bloomberg story claiming that Apple has reduced smartphone manufacturing in the second half of 2022 by approximately 7% compared to previous targets, investors are concerned that Apple’s iPhone sales would be lower than planned. However, I do not believe this concern is warranted.
First, investors should be aware that online search interest in iPhone items has steadily climbed throughout 2022, with overall interest remaining higher than in 2021.
Furthermore, web traffic to Apple’s website and e-store confirms the search pattern. According to Semrush data, traffic to ‘Apple.com’ is up roughly 8% from June to September 2022 compared to the same time in 2021.
Second, investors should keep in mind that the impact of lower production volume will most likely not be felt until Q1 2023.
Luxury Is Still in High Demand
Against all odds, LVMH reported an unusually successful third quarter, easily outperforming analyst consensus projections in revenue and profitability. Despite supposedly low consumer mood, LVMH announced a 19% year-over-year sales rise in the September quarter.
LVMH emphasized surprisingly strong demand in the United States, Japan, and Europe. In my perspective, Apple and LVMH are comparable; both companies have unrivaled consumer-centric luxury/premium brand value. So, if LVMH can generate great results amid inflationary pressures, increasing interest rates, declining asset prices, and a sluggish Chinese economy, Apple is highly likely to do the same.
Apple’s Performance Is Important
Investors will watch Apple’s fourth-quarter data to see if the market is vulnerable to an economic slowdown. According to the Bloomberg MLIV pulse survey, 60% of investors consider Apple an essential pulse monitor for the global economy and market sentiment.
As a result, positive Q4 earnings from Apple might fuel a buying frenzy in the S&P 500. And, because Apple is the most significant component of both the S&P 500 and the Nasdaq 100, Apple stock will benefit indirectly from increased buying pressure.
Earnings Risks in the Fourth Quarter
The main risk I see with Q4 earnings is not related to the September quarter financials but poor guidance. Investors should remember that buying Apple is a leveraged bet on the world economy, global investor mood, and global politics. Arguing that Apple is untouched by a complex economic background does not make intellectual sense, considering that Apple sells about 200 million >$800 smartphones to consumers worldwide each year. As a result, the comments surrounding inflation, the likelihood of a recession, and China’s mounting issues will be critical to monitor.
What About Apple Stock?
I am optimistic about Apple’s Q4 earnings announcement because the market has already discounted too much negative. Other evidence does not imply that the global economic slowdown has already had a toll on Apple stock. As a result, I believe an upward surprise is likely. Given Apple stock’s significant relevance for investor confidence, investors could consider buying exposure to Apple stock directly or indirectly through the market (S&P 500) to trade the thesis.
Featured Image- Megapixl @ Wachiwit
