Apple likely to report 'solid' results, but valuation a concern: Baird
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Apple (NASDAQ:AAPL) is slated to report fiscal second-quarter results after the close of trading on Thursday and though the company is likely to report "solid" results, its current valuation may be an issue, investment firm Baird said.
"We remain positive on the long-term eco-system benefits, strong free cash flow and capital returns, and are raising our target modestly," analyst William Power, who rates Apple (AAPL) outperform, wrote in an investor note.
"However, with valuation vs. the S&P 500 near all-time highs, we'd also be more aggressive buyers on any pullbacks."
Power noted that Apple (AAPL) is currently trading at 27.8 times 2023 estimated earnings and 26.3 times 2024 estimated earnings, while the S&P 500 is trading at roughly 19 times estimated earnings. This is the highest premium relative to the S&P 500 since 2020.
Apple (AAPL) shares have gained around 30% year-to-date, while the S&P 500 and Nasdaq are up 8.6% and 16.7%, respectively.
For the second-quarter, Power expects Apple (AAPL) to generate $1.41 per share in earnings and $92.1B in revenue, including $47.9B from the iPhone. He expects Services revenue to rise 2.1% year-over-year to $20.2B, though the Mac is likely to see some pressure, given IDC's recent first-quarter data showed Mac shipments fell 40% year-over-year.
A consensus of analysts expect Apple (AAPL) to earn $1.43 per share and $92.84B in revenue.
In addition, Apple (AAPL) is expected to update its capital return policy, with Power expecting it to "mirror" recent years updates, including a higher buyback and "slightly higher" dividend.
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