Apple share price: what to watch in the Q3 earnings release

The rally in Apple shares has shown how unperturbed investors remain, despite Covid-19 disruptions. Third quarter earnings will be one to watch, as will the optimism created by 5G developments in the sector.

When will Apple release Q3 earnings results?

Apple will be releasing its third quarter (Q3) 2020 earnings before the market open on 30 July. This will be for the quarter across April to June 2020, corresponding with the wider US Q2 earnings season.

What to expect with Apple’s Q3 2020 earnings performance?

With Apple, this will be another earnings release where we are going in blind after management refrained from providing guidance in light of the uncertain times with Covid-19. That said, the market had not been perturbed by it, with prices skyrocketing to all an time high ahead of the results release.

Earnings per share (EPS) for Apple is projected to come in at $2.01 according to Refinitiv polls. This represents an 8% drop from a year ago and 21% decline from the previous quarter. Revenue is expected to slip by a smaller 4% from Q3 2019 to a mean forecast of $51.5 billion.

Across the different components, iPhones - which account for approximately half of Apple’s revenue - had been pencilled in for the steepest drop here at -14%. This is perhaps not a surprise due to the store closures that continue to remain a prevalent issue amidst the Covid-19 crisis. At the same time, supply chain issues had also plagued Apple, although these appear to have been resolved in the latter stages of the quarter.

For services revenue, which Apple had been keenly cultivating, growth is still expected to continue at a steady clip of 15%. Should this materialise, it will be a reassuring sign for Apple who have been trying to improve the quality of its revenue.

Historical (Actuals) Forecast (Mean)
Revenue 58,313 0.51% 51509 -4.27%
iPad 4368 -10.34% 4894 -2.57%
iPhone 28,962 -6.73% 22,396 -13.81%
Mac 5351 -2.94% 5961 2.42%
Other products 6284 22.52% 5971 8.07%
Services 13,348 16.58% 13,176 15.02%

How to trade Apple’s results release?

Across Refinitiv consensus, we are seeing 66.7% of the analysts recommending a buy or strong buy call amongst the 30 views. Although, the target price of $357.40 sits jarringly below the current traded price of $387.00 at the point of writing.

Indeed, from a valuation perspective, Apple retains a rather high price-to-earnings (P/E) ratio of 30.3. However, enthusing the market is also the fact that Apple is due to ride the 5G wave with refreshed handsets expected in the second half (H2) of 2020, including the top end iPhone Pro models, that could give revenue a boost later in the year.

While it may be hard to gauge the dent to iPhone revenue amid the Covid-19 disruptions, the likes of iPad, Mac and services performance are areas where surprises may occur in light of the behavioural changes brought about by the pandemic. One to watch. The tone held by management will also be critical going into the latter half of the year where Apple typically draws the bulk of its yearly revenue.

Apple share price: technical analysis

Alongside US FANG stocks, Apple had seen its share price headed mostly one direction after the initial plunge in Q1. Although the rally looks to be stalling ahead of the $400.00 barrier, the uptrend remains evidently intact. In the short term, the 50-day simple moving average (SMA) had also reflected this pick up in momentum with the crossing back above of the 100-day SMA earlier in June.

The long-term trend for Apple remains one on the up and even if we should see some pullbacks with earnings disappointment, it may make for a healthy adjustments of prices and buying opportunity for the longer term, particularly ahead of the 5G introduction.

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