Apple Inc Earnings Preview: Weak Outlook Already Priced In, Says Goldman

Apple is scheduled to release the earnings results from its first fiscal quarter on Jan. 26 after closing bell, and that report’s a real nail-biter right now. Wall Street is concerned about the iPhone’s future amid signs that demand for the iPhone 6s lineup is weaker than expected.

Meanwhile Apple shares have been tumbling and have already fallen by more than 8% this year. The stock has slid 12% over the past month, which is worse than the S&P’s 8% decline and the NASDAQ’s 10% fall, notes Goldman Sachs analysts.

Apple Inc Earnings Preview: Weak Outlook Already Priced In, Says Goldman

What to expect in Apple’s earnings report

Consensus estimates suggest the iPhone maker will post earnings of $3.24 per share and revenue of $76.8 billion. Management guided for revenue of between $75.5 billion and $77.5 billion for the December quarter. For the March quarter, Apple is expected to guide for between $53 billion and $55 billion, according to Goldman analysts, who are expecting $57.1 billion and earnings of $2.30 per share.

Consensus estimates for the second fiscal quarter are earnings of $2.26 per share and $56.5 billion in sales.

iPhone weakness still evident

In a report dated Jan. 19, analyst Simona Jankowski and team said their recent survey indicated that fewer iPhones were purchased during the holiday shopping season than previously expected. They surveyed 1,000 consumers in the U.S. Further, they also found that Apple’s price increases in some of its most important international markets have placed a damper on sales in some areas like Japan.

Despite the troubling data points, they think the recent pullback in the stock offers a buying opportunity. For example, they think Wall Street was already expecting a guide-down, and they see the iPhone maker as a “defensive stock relative to the current market sell-off.” Additionally, they note that the March quarter marks the trough in revenue growth year over year, which usually makes this time a good time to purchase hardware stocks as comparisons ease ahead of the next product cycles, which should drive acceleration throughout the rest of the year.

Apple moves toward recurring revenue

The Goldman team also expects the stock’s multiple to “increasingly reflect the evolution to ‘Apple-as-a-Service.'” That basically means that the company will transform into one with recurring revenue through the iPhone upgrade program and adoption of services like Apple Music, Apple Pay and other products and services. They say all of these factors will combine to increase the stickiness of the 500 million iPhone installed base.

They have a $155 price target and Buy rating on Apple stock. The stock fell by as much as 0.84% to $96.31 per share during regular trading hours today.