Apple Inc. (NASDAQ:AAPL) is set to release its second fiscal quarter earnings report after closing bell tonight, and the general view is that iPhone sales hit a speedbump during the quarter but that it really doesn’t matter. Apple stock perma-bulls have whetted their own appetites for the iPhone 8 later this year, so many investors and analysts see tonight’s earnings release as a mere formality for Apple.

Apple Stock AAPL
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Has Apple stock gotten ahead of itself?

Nevertheless, investors pushed Apple stock to a fresh high of $148.09 during regular trading hours today leading up to tonight’s earnings report. Investing.com Senior Analyst Clement Thibault has a contrarian view on the Apple stock rally, as he says he likes the stock, but not at the current price.

“All in all, we’re cautiously bullish on Apple and the iPhone 8,” Thibault told ValueWalk in an email.
“However, this does not mean that we like Apple’s current pricing, $143 per share. In addition, we actually think that there is currently about 10% of potential downside, to the $130 area, for one reason – Apple’s numbers are just not there yet. We believe its rally has gone too far and the current trajectory points lower, for now.”

Pretty much every other analyst has Apple stock rated as a Buy or the equivalent, with one notable exception being Barclays, which rates it at Equal Weight.

Record low upgrade rates

Three of the four major mobile carriers in the U.S. have already reported their earnings (Sprint is due to report this week), and one common theme among all their reports was ultra-low upgrade rates. AT&T and Verizon both recorded record low upgrade rates during the first quarter, while T-Mobile’s upgrade rate was flat with last year. Most analysts agree that this is caused by Apple users waiting to upgrade their phones until after they see what the iPhone 8 has to offer.

Nomura analysts estimate the impact of upgrade deferrals at 1 million iPhones per quarter in the U.S. They feel the impact will be similar in international markets, although possibly “less potent.” They see very little risk that Apple is losing users and predict that deferred upgrades will appear after the iPhone 8 launches.

What to expect in Apple’s earnings report

Nomura analyst Jeffrey Kvaal estimates that the company sold 50.5 million iPhones during the March quarter, although that’s below the consensus at 52 million. Bank of America Merrill Lynch is estimating 51 million iPhones, while Drexel Hamilton pegs iPhone units at 51.05 million. As far as headline numbers, consensus stands at $53 billion in sales and $2.02 per share in earnings. Apple guided for $51.5 billion to $53.5 billion in revenue, implying earnings of about $1.97 per share.

The March and June quarters are always the weakest for Apple, but the iPhone 8 could exaggerate that effect this year. Drexel Hamilton analyst Brian White expects investors to keep supporting Apple stock going into the iPhone 8 cycle. He projects 9 million iPads and 4.03 million Macs and estimates $7.2 million in Services revenue.

Capital return expected to be another key issue tonight

In addition to earnings, most analysts are expecting some kind of update on the company’s capital return plan. BAML analysts said in their May 1 note that Apple has returned more than $200 billion in capital to shareholders under the $250 billion program it introduced in 2012, with $51 billion coming in dividends and the rest on share repurchases.

BAML believes the company will increase its capital return program again, given that it has done so in April of the last two years. They expect the company to boost its share repurchase authorization by $35 billion to $50 billion and increase its dividend by 10%.