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Apple Inc. (AAPL) stock has been rising fairly steadily since the beginning of the year, with today looking like another day on the plus side. The iPhone maker is set to announce its December quarter earnings results on Jan. 31 after closing bell, and most analysts are predicting an in-line quarter.  However, some warn that management’s guidance could disappoint, while others are looking for an above-consensus guide.
Apple (AAPL) stock riding on installed base
In a research note dated Jan. 17 UBS analyst Steven Milunovich said he sees upside for Apple Inc. (AAPL) stock based on his estimates for the company’s installed base and user spending. He notes that the company has been “struggling for a narrative beyond the iPhone cycle,” but he sees services as providing a potential second narrative.
He tracks the services business through Apple Inc. (AAPL)’s installed user base in fiscal 2015 and fiscal 2016. He estimates that the company added 100 million users in each year, although its revenue per user fell to $396 from $520. Although he expects the installed base growth to slow because of its size and increased competition, he expects revenue per user to stabilize at around $340, even if the company doesn’t release any big new hit products. Further, he believes that Apple stock currently prices in only a flat user base and $313 in revenue per user for the services business.
The analyst continues to see Apple Inc. (AAPL) stock as a buy for the fiscal 2018 product cycle, as he notes downside risk in the March and June quarters. Despite this risk, investors might be so optimistic about the iPhone 8 product cycle that it might not matter if the company misses estimates for those two quarters.
Milunovich has a Buy rating and $127 price target on Apple Inc. (AAPL) stock.
Goldman: Apple (AAPL)’s guidance could be higher than expected
Goldman Sachs analyst Simona Jankowski offered a preview for the iPhone maker’s next earnings report in a research note dated Jan. 17. She’s looking for a mostly in-line quarter as lingering supply constraints capped upside to iPhone unit estimates despite indications of strong demand in the U.S. She’s projecting $78.1 billion in revenue, which just barely tops the guide of $76 billion to $78 billion. Her estimate is also ahead of consensus at $77.4 billion, although her iPhone unit estimate is slightly below consensus at 76.6 million versus the Street’s estimate of 77.6 million.
Interestingly, she sees the Apple Watch and iPad as drivers of upside for the holiday quarter, as her survey indicated strong demand for both. The survey pointed to more than 20% growth in iPad sales year over year and a 50% increase in Watch sales in the U.S. iPhone demand grew 30% in the U.S., although Jankowski sees signs of further weakness in China. She’s looking for $3.26 per share in earnings.
For the March quarter, she’s projecting $56.2 billion in sales and $2.27 per share in earnings, compared to the consensus estimates of $54.4 billion and $2.13 per share. She expects Apple Inc. (AAPL) management to guide for $54 billion to $56 billion in sales for the March quarter based on 55.7 million iPhones, compared to the consensus of 54.4 million units.
She added that her survey shows continued strength in iPhone demand in the U.S. as 19% of respondents said they intend to purchase one in the next three months, compared to 17% a year ago.
Goldman has a Buy rating and $133 price target on Apple Inc. (AAPL) stock.
Apple’s guide will miss consensus: Morgan Stanley
Morgan Stanley analyst Katy Huberty, on the other hand, expects Apple Inc. (AAPL) management to guide below consensus for the March quarter. In a note dated Jan. 16, she said she expects $51.5 billion in revenue, earnings per share of $1.97 and a gross margin of 38.3% for the March quarter.
She projects 75 million iPhones in the December quarter and 51 million for the March quarter. Her AlphaWise Tracker suggests 73.5 million units for the holiday quarter based on web search analysis.
She’s looking for 10 million iPad shipments for the December quarter based on supply chain build data and projects $76.6 billion in total revenue. She expects earnings of $3.20 per share and a gross margin of 38.5%, which is in line with consensus. Apple Inc. (AAPL) management guided for a gross margin of 38% to 38.5%.
Huberty has an Overweight rating and $148 price target on Apple Inc. (AAPL) stock, which she says remains a top pick based on the iPhone 8 supercycle she predicts for fiscal 2018—a view that appears to be consensus and matches what UBS said.
Shares of Apple Inc. (AAPL) stock rose by as much as 0.79% to $119.97 during regular trading hours on Tuesday.