Apple (NASDAQ:AAPL) appears to be heading into its next earnings report on firmer footing than just a few weeks ago, as recent checks from KeyBanc Capital point to a pickup in spending on the tech giant’s products in March following its latest hardware updates.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
Digging into the data, KeyBanc analyst Brandon Nispel notes that the firm’s KFLD (Key First Look Data) shows that indexed spending rose 37% month over month in March, well above the three-year average increase of 12%. On a year-over-year basis, indexed spending accelerated to 11% from 4% in February. For the first calendar quarter, KFLD came in at -19.1% sequentially, an improvement versus the three-year average decline of 24%, and was up 6% year over year compared with -8% in the fourth quarter.
“We attribute much of the strength to new product introductions in early March,” the analyst said. “January and March KFLD were above historical seasonal growth, with March notably higher, which we believe suggests overall trends are strong heading into the March quarter.”
So, what does this mean? Apple’s FQ2 (March quarter) hardware revenue has historically declined about 27.9% quarter over quarter over the past three years, compared with current consensus expectations of a 30.7% decline and KeyBanc’s estimate of a 30.3% drop. Based on Apple’s forecast for 13–16% year-over-year revenue growth, and assuming Services grow around 13.9%, hardware revenue should show a 29–31% quarter-over-quarter decline, or 12.7–16.8% year-over-year growth. The analyst suggests Apple may be somewhat supply-constrained, but also potentially building iPhone 17 inventory ahead of a missing base iPhone 18 model this fall.
Nispel is slightly above consensus overall on hardware, with iPhone growth expected at 17.9% year over year versus the Street at 20.3%, in line on iPad at 2.9%, and above on Mac at 14.5% versus 2.3% and Wearables at 10.4% versus 3.1%.
The data has led Nispel to raise some of his estimates. For FQ2, he now expects $109.6 billion in revenue (up from $108.7 billion), representing 14.9% year-over-year growth, driven mainly by stronger iPhone assumptions (higher ASPs and units) and partially offset by weaker Wearables. Gross margin is expected to come in at 48.5%, in line with consensus.
For FQ3, higher iPhone and ASP assumptions lift revenue to $109.3 billion (from $106.4 billion), up 16.3% year over year and above the consensus call for 8.8% growth, with gross margin at 47.3%, slightly below consensus at 47.6%.
Nevertheless, the bump in estimates is not reason enough for Nispel to alter his AAPL stance.
“We think demand remains strong and AAPL will handle rising component/memory prices through higher end SKUs, and likely take share,” he explained. “That said, while we see upside to NT revenue estimates, we think the stock, currently trading at ~20x ’27 EV/EBITDA and 28x P/E as fairly valued, particularly in the context of AAPL’s historical spread vs. the Nasdaq/other Big Tech.”
Accordingly, Nispel assigns Apple shares a Sector Weight (i.e., Neutral) rating without offering a price target. (To watch Nispel’s track record, click here)
7 other analysts also remain on the AAPL fence, while an additional 14 Buys and 1 Sell all add up to a Moderate Buy consensus rating. Shares are expected to rise by 20% over the next year, considering the average price target stands at $304.40. (See AAPL stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.