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Q3 Apple cheat sheet: Should you buy on the dip?

Shares in Apple (NASDAQ:AAPL) crumbled from $153.18 on July 27 to their current price of $149.50. The fall was mirrored across a number of big-name tech stocks. Google, Microsoft, Netflix and Amazon all moved lower on Thursday. The market had traded higher on the back of Facebook’s strong Q2 results, but was spooked by concerns that tech stocks are moving too high. These fears can cause abrupt price shifts, as last seen at the beginning of June

And it is into this climate that Apple is about to release its fiscal Q3 earnings results. If Apple misses its estimates, in particular in terms of iPhone 8 guidance, then serious volatility is on the cards. So what exactly is the Street expecting for this tech giant going into the print?

TipRanks’ unique earning calendar shows that the Street is predicting EPS of $1.57- a big leap from the EPS last year of $1.4. Apple has guided for revenues of between $43.5 billion – $45.5 billion for the quarter, up about 5% at the mid-point over last year. And we can see that AAPL has a Strong Buy analyst consensus rating with a $164.93 price target. This translates into 10.32% upside from the current share price.

Clicking on the stock ticker takes us to Apple’s TipRanks profile page. Here we see how AAPL has received 25 buy ratings and 8 hold ratings in the last three months. The price target meanwhile ranges from $120 on the low to $202 on the high:

So, who are the analysts responsible for these bullish and bearish outlooks? Scrolling down reveals the details of each rating. Note the difference in star-scores for the two analysts. A very low analyst ranking suggests that you may want to analyze that rating with a pinch of salt:

Keep an eye on…

In general key trends to watch out for in the results include iPhone sales (which could be muted in run up to iPhone 8 launch later this year), gross margin pressure (due to rising prices for DRAM and NAND memory, with DRAM up 14% in the quarter) and iPad sales (Apple introduced its cheapest iPad at just $329 in March).

Now if we want to find out what specific analysts are predicting for the quarter we can turn to some of the more recent ratings and read the accompanying article.

1. Goldman Sachs’ Simona Jankowski

Simona Jankowski believes results are likely to meet or even beat estimates. However, she says that the guidance for the next quarter runs the risk of being “highly volatile,” depending “on the exact timing of the iPhone 8] launch”. There is now a chance the phone will only launch in October:

“While Apple typically launches in 2H September, the potentially significant redesign of the new phone has given rise to concerns that shipments could be delayed to October due to supply chain bottlenecks,” explains Jankowski.

But Jankowski concludes, “Importantly, while the exact timing could increase near-term volatility, we recommend staying long Apple shares into the product cycle, as we see significant EPS upside in FY18, with Goldman Sachs’ estimates at $11.50 vs. cons. $10.48, driven by significantly higher average selling price for the new iPhone.” She reiterated her buy rating with a confident $170 price target.

2. Mizuho Securities’ Abhey Lamba

On the more cautious front we have Abhey Lamba who provides a rare note of skepticism from a best-performing analyst. Lamba says “we remain on the sidelines given our view that the large upcoming cycle is already baked into the stock.” He believes that investors could look past the softer guide in anticipation of the upcoming iPhone 8 product cycle, but ultimately:

We expect results to print largely in-line with consensus based on our view of a potentially conservative guide. iPhone shipment expectations of 41mm units seem reasonable, while we expect in-line ASPs as well. Supply chain checks by our Japan team suggest that production of the high-end OLED SKU is being pushed out, though, demand likely remains strong. For F4Q, we expect the outlook to be in-line to slightly below estimates.” Lamba reiterated his hold rating with a $150 price target on July 21.

3. Needham’s Laura Martin

Laura Martin simply states that Apple remains her top stock pick for 2017. She likes the stock’s strategic position, revenue upside, falling risks, and catalysts. Her $165 price target stands at a 7.3% upside from the current share price.

The conclusion:

If we follow the majority analyst opinion, then Goldman Sachs’ Jankowski seems to have it right when she says that short-term volatility should not distract from the stock’s bullish long-term outlook. This is particularly true when the much-hyped iPhone 8 launch is just around the corner. A successful launch could well be a game-changer for the stock.

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TipRanks tracks over 5,000 different stocks from eight different market sectors, giving investors the most comprehensive insight into the market activity on any one stock. Even better, TipRanks ranks analysts according to their success rate and average return so investors know which financial experts to trust before making crucial investing decisions.

Which “Strong Buy” stocks are the Street’s best analysts recommending right now? Find out here.

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