Apple Poised for a Strong Comeback, Bernstein Says

Bernstein analysts predict a strong comeback for Apple, indicating positive future prospects for the company.

Apple (NASDAQ:AAPL) was in the spotlight on Monday as Bernstein upgraded the tech giant ahead of its fiscal second-quarter earnings, set to be released on May 2. Shares rose 2% in premarket trading. Analyst Toni Sacconaghi believes that the current weakness in China is more cyclical than structural, noting that Apple’s China business has historically shown higher volatility compared to the company’s overall performance. Sacconaghi raised his rating on Apple to Outperform from Market Perform and maintained his $195 price target.

Bernstein's Upgrade and Buffett's Strategy

Bernstein’s upgrade comes as the firm believes Apple shares have fallen too far due to concerns over slow iPhone 15 sales and weak revenue in China. The firm advised investors to “be like Buffett” and buy the shares while they are relatively cheap. Apple is currently trading at a price-to-earnings ratio of 26.4 based on Bernstein’s 2024 earnings estimate and 22.9 times its 2025 estimate.

The analyst also noted that Apple’s stock has outperformed in 15 of the past 17 periods in the three months leading up to a new iPhone launch, which is expected in September. Sacconaghi highlighted risks such as a major escalation in tensions between the U.S. and China, the emergence of a “super-app,” and the transition to new hardware.

Earnings Expectations and Analyst Ratings

Analysts estimate that Apple will report earnings of $1.51 per share on $90.6 billion in revenue. While acknowledging potential short-term challenges, Sacconaghi suggests that the use of generative artificial intelligence features in the next iPhone and tailwinds from the replacement cycle could position the company well. He also mentioned that Apple could potentially exceed 2025 estimates of $416.9 billion in revenue and $7.40 in earnings per share.

Wall Street anticipates a year-over-year decline in earnings on lower revenues when Apple reports its results for the quarter ended March 2024. The Zacks Consensus Estimate expects quarterly earnings of $1.51 per share, representing a year-over-year change of -0.7%, and revenues of $89.99 billion, down 5.1% from the year-ago quarter.

Earnings Beat Likelihood and Analyst Consensus

The Most Accurate Estimate for Apple is higher than the Zacks Consensus Estimate, resulting in an Earnings ESP of +0.93%. Combined with a Zacks Rank of #3, this indicates that Apple will likely beat the consensus EPS estimate.

Analysts are generally bullish on Apple, with Seeking Alpha authors and Wall Street analysts rating it a BUY. However, Seeking Alpha’s quant system rates AAPL a HOLD.