What Can You Expect from Apple Stock in Q4?

The earnings season has kicked-off and several big-ticket companies will be reporting their quarterly results this week. Technology giant (NASDAQ: AAPL) will disclose its fiscal fourth quarter of 2020 results on Thursday, October 29.

Wall Street expects Apple to report revenue of $64.16 billion in the fiscal fourth quarter with adjusted earnings per share of $0.71. This indicates a 0.2% year-over-year growth in revenue while a 6.6% decline in earnings. Further, Apple sales might rise 5.1% while earnings might rise 9.1% year-over-year in fiscal 2020 if the company meets target estimates in Q4.

Apple has in fact managed to beat Wall Street earnings estimates in each of the last four quarters which has driven its stock price higher by 86% in the last 12-months, easily beating the S&P 500. 

 

iPhone 12 will be a key driver for fiscal 2021

The tech behemoth generates a majority of sales from its iPhone and a lot of eyes will be on CEO Tim Cook’s guidance for the upcoming quarters. Apple’s latest lineup of iPhone 12 devices began preorders recently and noted analyst Ming-Chi Kuo said the response has been encouraging.

According to Kuo, the iPhone 12 preorders were twice as much compared to the iPhone 11 while a 9to5Mac report forecasts the company to have sold anywhere between 1.7 million and 2 million units in the first 24 hours of preorder availability. Comparatively, this forecast stood between 500,000 and 800,000 for the iPhone 11.

Further, the iPhone 12 will be sold without the inclusion of wired headphones which might also boost demand for AirPods.

 

Apple has a diversified revenue base

Even though Apple is largely dependent on the iPhone, it has diversified its revenue base over the last few years. In fiscal 2015 the iPhone accounted for over 65% of total sales for Apple and this fell to just 43% in the June quarter of 2020.

While Apple remains one of the top leaders in the smartphone space, the Services segment is its fastest-growing one. In Q3, Services sales were up 15% and accounted for 22% of total sales.

Apple Services include several subscription products including Apple TV+, Apple Music, Apple Care, and Apple Arcade. This enables the company to generate a healthy gross margin which was north of 60% in Q3.

Further, the company is a market leader in the high-growth wearables space which is another multi-billion-dollar business for the company.

 

Stock valuation and more

Despite the stellar run in the last year, Apple stock is trading 14% below its record high at $115. This indicates a market cap of $2 trillion which means its forward price to sales multiple is 7.3x while its price to earnings multiple is 35.6x.

We can see Apple stock is trading at a premium given its 5-year estimated earnings growth is 12.6%. There is a chance for Apple shares to trade lower after its Q4 earnings allowing investors to buy a quality stock at a lower valuation.

Analysts tracking Apple have a 12-month average target price of $121.4 which is 5% above its current trading price.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.