Leading tech company Apple Inc. (AAPL) is scheduled to release its fiscal 2023 fourth-quarter results on November 2, 2023, after the market close. Analysts expect its EPS to increase 7.9% year-over-year to $1.39 for the quarter that ended September 2023. However, the company’s revenue for the to-be-reported quarter is expected to decline 0.8% year-over-year to $89.40 billion.

Apple didn’t provide official financial guidance. It hasn’t provided guidance since 2020, given uncertainty. But the consumer electronics giant did provide some data points on how it sees its September quarter. AAPL’s CFO Luca Maestri said the company’s current quarter would report a similar year-over-year decline in revenue as the June quarter.

But Maestri expects iPhone and services year-over-year performance to accelerate from the last reported quarter. However, the company anticipates the revenue for Mac and iPad to decrease by double digits year-over-year. AAPL’s gross margin is expected to be between 44% and 45%.

The tech giant’s third-quarter earnings and revenue topped analysts’ estimates, driven by solid services sales that rose 8% on an annual basis.

“We are happy to report that we had an all-time revenue record in Services during the June quarter, driven by over 1 billion paid subscriptions, and we saw continued strength in emerging markets thanks to robust sales of iPhone,” said Tim Cook, Apple’s CEO.

AAPL reported EPS of $1.26, beating analysts’ expectations of $1.19. Its revenue was $81.80 billion, in line with the consensus estimate. But the company’s revenue dropped 1.4% year-over-year, marking three consecutive quarters of declining sales. Also, revenue in its iPhone, Mac, and iPad lineups were all down from a year ago.

On October 4, KeyBanc Capital Markets analyst Brandon Nispel downgraded AAPL stock to sector weight or neutral from overweight or buy. Nispel expects a slowdown in the company’s U.S. sales growth through the first quarter of fiscal 2024 amid weakened consumer spending.

He also said that relatively high estimates of AAPL’s top and bottom lines might leave little room for upside surprise when it posts its earnings report.

Shares of AAPL have gained 36.2% year-to-date and 11.1% over the past year to close the last trading session at $170.29. However, the stock slumped 1.5% over the past month.

Here’s what could influence AAPL’s performance in the upcoming months:

Positive Recent Developments

On September 12, Apple introduced its iPhone 15 lineup, including the iPhone 15, iPhone 15 Plus, iPhone 15 Pro and iPhone 15 Pro Max. The new handsets feature a strong and lightweight titanium design with new contoured edges, a new Action button, powerful camera upgrades, and A16 Bionic/A17 Pro for next-level performance and mobile gaming.

On the same day, the company unveiled the Apple Watch Ultra™ 2, bringing new features to Apple’s most capable and rugged smartwatch and achieving a significant environmental milestone.

Apple Watch Ultra 2 offers all the features users love about Ultra, coupled with the powerful new S9 SiP, a magical new double tap gesture, Apple’s brightest display ever, extended altitude range, on-device Siri®, Precision Finding for iPhone®, and advanced capabilities for water adventures. Such advancements in AAPL’s product portfolio should drive its growth and profitability.

Mixed Financials

AAPL’s total net sales decreased 1.4% year-over-year to $81.80 billion for the third quarter that ended July 1, 2023. Its operating income was $23 billion, a marginal decline year-over-year. However, the company’s gross margin rose 1.5% from the year-ago value to $36.41 billion.

In addition, the company’s net income and earnings per share came in at $19.88 billion and $1.26, increases of 2.3% and 5% year-over-year, respectively. As of July 1, 2023, AAPL’s cash and cash equivalents were $28.41 billion, compared to $23.65 billion as of September 24, 2022.

Mixed Analyst Estimates

Analysts expect AAPL’s revenue for the fiscal year (ending September 2023) to decrease 2.8% year-over-year to $383.19 billion. The consensus earnings per share estimate of $6.07 for the same period indicates a decline of 0.6% year-over-year. However, the company has topped the consensus EPS estimates in three of the trailing four quarters.

For the fiscal year 2024, the company’s revenue and EPS are expected to grow 5.4% and 7.7% year-over-year to $403.91 billion and $6.54, respectively.

High Profitability

AAPL’s trailing-12-month EBIT margin of 29.23% is 554.5% higher than the 4.47% industry average. Also, the stock’s trailing-12-month net income margin of 24.68% is 1,127.3% higher than the industry average of 2.01%. And its trailing-12-month levered FCF margin of 23.62% is 238.8% higher than the 6.97% industry average.

In addition, the stock’s trailing-12-month ROCE and ROTC of 160.09% and 40.39% are significantly higher than the industry averages of 0.62% and 2.37%, respectively. Its trailing-12-month ROTA of 28.28% compares to the industry average of negative 0.24%.

Elevated Valuation

In terms of forward non-GAAP P/E, AAPL is currently trading at 29.47x, 28.3% higher than the industry average of 22.97x. The stock’s forward EV/Sales of 7.14x is 164.3% higher than the industry average of 2.70x. In addition, its forward EV/EBITDA multiple of 21.83 is 47.1% higher than the industry average of 14.84.

Moreover, AAPL’s forward Price/Sales and Price/Cash Flow of 7.29x and 24.69x compared to the respective industry averages of 2.62x and 19.89x. The stock’s forward Price/Book multiple of 46.78 is considerably higher than the industry average of 3.90.

POWR Ratings Reflect Uncertainty

AAPL’s mixed prospects are reflected in its POWR Ratings. The stock has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a C grade for Sentiment, consistent with mixed analyst expectations.

In addition, the stock has a C grade for Stability, in sync with its 24-month beta of 1.25.

AAPL is ranked #20 out of 39 stocks in the B-rated Technology - Hardware industry.

Beyond what I have stated above, we have also given AAPL grades for Quality, Value, Growth, and Momentum. Get all AAPL’s POWR Ratings here.

Bottom Line

While AAPL’s third-quarter revenue and earnings beat analyst estimates, its overall sales dropped year-over-year. After posting its third consecutive quarter of declining sales, the company predicted a similar performance in the September quarter, hurt by an industry-wide slump that has weakened demand for phones, computers, and tablets.

Given AAPL’s mixed financial performance, stretched valuation, and near-term bleak outlook, it could be wise for investors to wait for a better entry point in this tech stock.

Stocks to Consider Instead of Apple Inc. (AAPL)

Given its uncertain short-term prospects, the odds of AAPL outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks from the Technology - Hardware industry instead:

Canon Inc. (CAJ)

Panasonic Holdings Corp. (PCRFY)

Daktronics, Inc. (DAKT)

To explore more A and B-rated hardware stocks, click here.

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AAPL shares fell $0.69 (-0.41%) in premarket trading Tuesday. Year-to-date, AAPL has gained 31.62%, versus a 9.88% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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