Analysts Set High Expectations for Apple Ahead of Earnings Report

Source: Thinkstock

Source: Thinkstock

Apple (NASDAQ:AAPL) will announce its fiscal third-quarter results on Tuesday, July 22 after the markets close. Apple’s fiscal third-quarters have historically recorded slow sales since many consumers are holding off on purchasing another iPhone until the new models are launched in September, during the fiscal fourth-quarter. However, based on the surprising strength of Apple’s iPhone sales during the March quarter and the continuing impact of the company’s distribution deal with carrier partner China Mobile (NYSE:CHL), analysts’ expectations are especially high for this year’s June quarter results. According to analyst estimate data compiled by Yahoo Finance, the average revenue estimate for Apple’s fiscal third-quarter is $37.93 billion, while the average estimate for EPS is $1.23.

This revenue consensus estimate falls at the high end of Apple’s fiscal third-quarter guidance for revenue between $36 billion and $38 billion. Apple also said it expected gross margin between 37 percent and 38 percent, operating expenses between $4.4 billion and $4.5 billion, other income of $200 million, and a tax rate of 26.1 percent. It should be noted that Apple no longer provides EPS guidance.

Meanwhile, other analysts are expecting Apple to beat its earnings guidance. In a note issued to investors on Monday morning, Cantor Fitzgerald analyst Brian White raised his revenue estimate to $38.2 billion from $37.8 billion and adjusted his EPS projection to $1.25 from $1.19. Like many analysts, White believes this growth will be driven by Apple’s iPhone sales. White raised his iPhone estimate to 36.7 million units from 33.7 million based on “a disappointing Galaxy S5 launch by Samsung (SSNLF.PK) and challenges at other competitors.”

However, the Cantor Fitzgerald analyst also believes Apple’s trend of weak iPad sales continued in the June quarter and lowered his iPad estimate to 11.5 million units from 13 million. Apple’s iPad sales of 16.4 million in this year’s March quarter was considered disappointing since it was below last year’s sales of 19.5 million iPads. However, during the company’s last earnings call, Apple CEO Tim Cook noted that this drop was primarily due to channel inventory changes. Finally, White also lowered his Mac sales estimate to 4.22 million units from 4.38 million.

Piper Jaffray analyst Gene Munster also issued a note to investors on Monday that outlined his expectations for Apple’s fiscal third-quarter. Munster forecast revenue at the high end of Apple’s guidance at $38 billion and EPS of $1.23. He also believes Apple will report strong iPhone sales between 35 million and 36 million units, but expects year-over-year iPad sales to remain flat at 14 million to 15 million units.

Both Munster and White noted that most analysts will be focused on Apple’s September quarter guidance, when the large-screen iPhone 6 is expected to be launched. White expects Apple will “remain coy with its 4Q:FY14 outlook” and doesn’t anticipate any details about upcoming products. On the other hand, Munster believes Apple’s September quarter guidance “should offer insight into the timing of the next iPhone.” However, Munster also noted that, “Even if September guidance is below expectations, we believe investors would ultimately look past it and refocus on new products (larger screen iPhone, iWatch, iPads) in the fall.”

Cantor Fitzgerald has a “Buy” rating and a $110 price target on Apple shares, while Piper Jaffray has an “Overweight” rating and a $105 price target. A number of other firms have upgraded Apple this morning. UBS, which maintains a “Buy” rating on Apple, raised its price target to $115 from $100. Meanwhile, JMP Securities raised its rating on Apple to “Outperform” from “Market Perform” with a price target of $135.

Follow Nathanael on Twitter (@ArnoldEtan_WSCS)

More From Wall St. Cheat Sheet: