Will the Apple share price recover post-earnings?

Wall Street analysts expect Apple [AAPL] to report earnings growth in its first quarter (Q1) results on 27 January. According to 11 analyst forecasts polled by Zacks Equity Research, the technology giant has consensus earnings and revenue estimates of $1.89 and $118.bn for the quarter ended in December. 

Recent product releases, including the iPhone 13 and M1-powered Macs, are driving the positive sentiment. In addition, analysts at AJ Bell are optimistic as Q1 typically sees a strong performance thanks to the holiday period.

The company’s services division, which includes Apple TV, iTunes and the App Store, is expected to see a strong performance due to increased subscriptions momentum. There are also hopes that the supply chain issues and chip shortages that hampered production in 2021 are beginning to ease.

Indeed, Apple chief executive Tim Cook (pictured) said that various supply issues cost the company $6bn over the fourth quarter. However, he expects “solid year-over-year revenue growth” in Q1.

Apple share price dips after reaching $3trn valuation

The Apple share price has climbed 12.4% over the past 12 months (through 25 January), helping it become the first company to hit a $3trn market valuation on 3 January. However, the Apple share price has dipped 12.2% since the start of the year, leaving it valued at $2.61trn on 26 January.

Supply chain disruptions and market fears over higher inflation and potential interest rate hikes have battered the Apple share price. The stock is also facing antitrust regulations regarding app placement and payments on its platform.

In comparison, rival Samsung [005930.KS] has also suffered because of chip shortages, with its share price down 13.5% in the past year (through 24 January). The Microsoft [MSFT] share price, however, was up 25.2% over the same period. The Technology Select Sector SPDR Fund [XLK], which Apple shares have a 24% weighting in, has also climbed 13.9% over the past 12 months.

Q4 revenue miss expectations but earnings beat

In Q4, Apple reported revenues of $83.3bn, just below estimates of $84.8bn but up 29% year-over-year, according to CNBC. Earnings per share matched forecasts at $1.24, up from $0.73 in the same period the previous year.

Supply chain issues meant that iPhone revenue took a hit, coming in below the consensus estimate of $41.6bn at $38.8bn. Mac revenue of $9.1bn also missed expectations of $9.3bn. iPad revenue was better than expected, however, beating the $7.1bn expectation at $8.2bn. Services, an area Apple is increasing its focus, saw another record performance, generating $18.2bn, beating forecasts of $17.5bn.

Despite the largely positive results, the Apple share price dropped 2.9% in the fortnight after the announcement.

Services segment seen as Apple’s “cash cow”

Zacks Equity Research expects to see continued momentum in services when it reports Q1 results and strong performances from its iPhone, iPad, Mac, Wearables and App Store ecosystem.

“Although Apple’s business primarily runs around its flagship iPhone, the services portfolio has emerged as the company’s new cash cow,” the publication said. “Its focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul.”

“Although Apple’s business primarily runs around its flagship iPhone, the services portfolio has emerged as the company’s new cash cow. Its focus on autonomous vehicles and augmented reality/virtual reality technologies presents growth opportunities in the long haul” - Zacks Equity Research

Deutsche Bank analyst Sidney Ho has a ‘buy’ rating on the Apple share price with an average target price of $200. He cites the healthy demand for Apple products across its portfolio and believes that a high inflationary market could be a boost rather than a drag on the Apple share price. “We think Apple shares will benefit from a flight to quality in an inflationary environment,” Ho said.

According to Market Screener, analysts have a consensus ‘buy’ rating on the stock and an average target price of $180.