(Bloomberg) — Apple Inc. is facing something unusual as it prepares to report second-quarter results after the close: low expectations.
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Its reputation as a safe haven capable of outperforming in all market conditions has been disproven this year, as it significantly lags behind its peers with better growth, clearer AI talk, cheaper pricing – or All the foregoing. The result is that there may be less room for disappointment with a lowered bar, especially with a massive buyout announcement likely.
“Expectations are not very high this quarter, but if we get a better outlook, coupled with reasons for enthusiasm for AI, we could see the valuation start to rise a little,” said Matt Stucky, manager of chief portfolio officer at Northwestern Mutual. Asset management. “It can be hard to count on it, but Apple is a high-quality defensive stock with strong shareholder returns and strong cash flow. Shareholder returns are the primary reason to have a position.
Analysts expect Apple to add another $90 billion to its buyback program, suggesting it will follow Alphabet Inc. and Meta Platforms Inc. among big tech names that have announced huge buybacks this year. Apple has already spent more than $650 billion buying back its own shares since 2012, according to data compiled by Bloomberg.
Buybacks have been a way for Apple to prop up its profits. Revenue is expected to fall nearly 5% this quarter, which would mark its weakest rate in more than a year, as well as Apple’s fifth quarter in the last six with negative growth. Overall tech revenue is expected to grow 8.6% this quarter, according to Bloomberg Intelligence.
Growth trends largely reflect the Greater China region, which accounted for nearly 19% of Apple’s revenue in 2023. The company has seen weak iPhone sales in China as it loses share market for the benefit of Huawei Technologies Co.
The stock is down 11% this year, compared with a 3.9% gain for the Nasdaq 100 index. Compared to the technology benchmark, Apple’s underperformance in the first quarter of 2024 was the strongest since more than a decade. The stock rose 1.6% on Thursday.
Analysts are largely cautious. The consensus on Apple’s annual revenue fell 2.2% in the latest quarter, while the consensus on net income is down 0.8%. Fewer than 60% of analysts tracked by Bloomberg recommend buying the stock, a ratio much lower than other tech mega-caps.
However, these headwinds could be priced into stock prices following the year-to-date decline. Bernstein upgraded the stock earlier this week, calling China’s weakness “more cyclical than structural” and urging investors to “buy fear.” Likewise, Citi is seeing a dip in sentiment.
Read more: Apple report to show how it’s coping with the slowdown: preview
However, the stock is hardly considered a bargain, trading at nearly 25 times estimated earnings. Although this figure is significantly below the 2020 peak, it is still above its long-term average, as well as the broader market….
