Is Apple a buying opportunity in the face of impending earnings? Detailed analysis
- Apple’s second-quarter 2023 earnings forecast sees lower revenue and earnings per share, signaling vulnerability in a challenging macro environment
- Still, the company’s cash flow and weak earnings-per-share guidance could potentially help propel the stock higher in the near term.
- Let’s see in detail the financial data of the company with Investing Pro.
After the flurry of better-than-expected financial results from tech companies sent the site into its best month since January, the world’s largest company Apple (NASDAQ:) could be the source of the moment. decisive that the market is impatiently awaiting.
Analysts forecast a 4.6% drop in revenue year-on-year and a 6% drop in earnings per share year-on-year.
These numbers show that even Apple may not be immune to the headwinds brought about by the current difficult macroeconomic environment. This situation comes as Apple is about to launch its latest iPhone models, which are expected to be sold at high prices.
As the Fed rate hike cycle draws to a close with no signs of a near-term change in course, it will be critical to assess the impact of the prolonged rise in the cost of capital on financial health. of major global companies to predict the direction of the market.
Thanks to our tool Investing Pro, we’re going to dive into Apple’s financial data to better understand where we are today. Readers can do the same for virtually any company in the market using the link following.
Apple financial data
Users ofInvesting Pro know that Apple has had nineteen negative revisions to its earnings per share forecast in the past 90 days, compared to only ten positive revisions, which means that analysts rate the likelihood of a negative surprise rather only positive for tomorrow.
Source : Investing Pro
One of the main reasons for these revisions is that the slowdown in consumer spending has had a negative impact on Apple’s revenue growth. Despite the company’s strong financial performance in recent years, there are growing concerns that high-priced products may become less attractive to consumers in a weaker economy.
Source : Investing Pro
Additionally, the modest performance of consumer-facing services, such as Apple Music and TV+, could limit the company’s ability to improve growth rates in its Services segment.
That is why Investing Pro believes the company is trading at a high premium, with analyst fair value estimates representing an average downside risk of 11.4% over the next 12 months.
Source : Investing Pro
On the other hand, the giant corporation has been able to continue to expand its margins, benefiting from the combination of higher inflation and still resilient economic activity.
The chart above is arguably one of the metrics investors should be looking at most carefully when evaluating last quarter’s performance following the company’s earnings release tomorrow. A squeeze on Apple’s margins could indicate that the US economy is heading fast towards a stagflationary scenario.
Another important point is Apple’s financial health score. While the metric remains positive with respect to profitability health, price momentum and cash flow health, the relative value shows significant compression, implying that the business may be overpriced right now. .
This is due to higher EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortization) and PB/ROE (price/book value/return on equity) ratios.
Source : Investing Pro
Notably, the company’s cash flow has been trending lower since late 2021 due to rising interest rates.
In contrast, Apple remains the wealthiest company in the world in terms of cash reserves, with around $54 billion in net cash. Although cash has dwindled, investors expect Apple’s upcoming results to show an increase in stock repurchase approval and dividend payouts, which could push the stock higher in the near term. .
Apple has also taken steps to take advantage of the current high interest rate environment. The company’s new high-yield savings account reportedly attracted $1 billion in its first four days of operation.
Additionally, the company’s gross operating profit (EBITDA) has been on the rise since peaking in September last year.
Finally, while the company’s expansion into India may take time to bear fruit, it represents an additional growth avenue that could help sustain the company’s 28x P/E ratio for longer.
Source : Investing Pro
Conclusion
While Apple remains a safe haven in which to put its money, I wouldn’t consider it a real buy as earnings approach due to its current high premium and shrinking margins. Barring a change in course from the Fed, it is highly likely that the company’s finances will weaken along with the economy as a whole, which could offer investors a better entry point into the future.
Investing Pro
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Disclosure: I’author owns Apple shares for the long term.
