Source: Wall Street News
Apple, which has recently been riddled with negativity, will announce its financial results for the second fiscal quarter next Thursday. The Bank of America recently released a report saying that Apple's revenue and earnings per share for the second fiscal quarter are expected to be higher than market expectations, but due to still weak demand, it is expected that the third fiscal quarter results guidance may be lowered; however, the Bank of America pointed out that the acceleration in AI and the service business continue to accelerate growth, making Apple still the first choice for investing in technology stocks in 2024.
Bank of America expects Apple's second-fiscal quarter revenue to be 91.5 billion US dollars, higher than market expectations of 90.3 billion US dollars; earnings per share will be 1.53 US dollars, higher than market expectations of 1.50 US dollars. According to the research report, Bank of America expects sales revenue from Vision Pro to reach 1 billion US dollars, and this part is not included in the market model.
For the third fiscal quarter, Bank of America said that due to the weak demand environment, the bank lowered the iPhone sales estimate from 43 million units to 40 million units, compared with the market forecast of 43.6 million units. Bank of America expects Apple's revenue for the third fiscal quarter to be 81.7 billion US dollars, which falls short of market expectations of 83.8 billion US dollars; earnings per share are 1.32 US dollars, which falls short of the market's expectations of 1.33 US dollars.
Although Bank of America admits that the demand environment is weak, the research report believes that Apple's stock price already reflects this, and the stock has fallen 14% year to date. The Bank of America's overall forecast for Apple remains relatively unchanged throughout the year, reaffirming its purchase rating and stating that it is optimistic that new generative AI products will increase gross margin and that the service business will still have growth momentum.
The Bank of America said that Apple has several news to focus on for the rest of this year, which may have an opportunity to stimulate the rise in stock prices. Among them, the return on capital is likely to increase in the second fiscal quarter, the company will announce content related to generative AI at the Global Developers Conference (WWDC) in June, and launch the new iPhone 16 in the fall), and gross profit growth may accelerate further each quarter. A Bank of America survey shows that all four new iPhones this year may use the same A18 processor, which will improve AI/machine learning performance.
At the same time, Bank of America also believes that Apple's service growth remains strong, and profit margins have room to rise. The research report predicts that Apple's service business will continue to maintain double-digit year-on-year growth, which is expected to be 11% for the second fiscal quarter, 13% for the third fiscal quarter, and 15% for the fourth fiscal quarter. As the scale of the business expands and long-term opportunities, including in-house production of server chips and reduced reliance on public cloud service providers, Bank of America is optimistic that the profit margin of the Apple Services business will increase, and it is expected that revenue from licensing, App Store, iCloud, and subscription services will continue to grow strongly.
Bank of America continued to maintain its target price at $225 and raised Apple's revenue and earnings per share forecast for fiscal year 2024, raising its annual revenue forecast from US$393 billion to US$396 billion, and raising its annual earnings per share from US$6.68 to US$6.70. The research report also predicts that Apple will authorize a new $90 billion repurchase program, similar to previous years.
Meanwhile, Bank of America expects Apple to increase its dividend by 5% starting in the third fiscal quarter, and is currently moving towards the goal of “net cash neutral (Net Cash Neutral)”. Bank of America expects Apple's cash flow to remain strong, predicting free cash flow of $100 billion and $108 billion for the 2024/2025 fiscal year, respectively. Based on Bank of America's valuation of 32 times Apple's 2024 earnings per share, Bank of America kept the target price unchanged at $225.
Apple's stock price rose slightly by 0.51% to $169.89 on Thursday.
