Apple Stock: Can Earnings Season Be The Next Bullish Catalyst?

• As earnings season approaches, Apple's projected revenues for the September quarter might shrink by 1% YOY, but EPS is expected to grow by 8% YOY.
• Apple's potential earnings growth drivers include increased service revenue growth, expected to reach double digits, and the company's aggressive stock buyback strategy.
• The Q4 earnings could jolt Apple's stock price, especially if unexpected revenue or EPS results emerge or if significant fiscal Q1 guidance is provided during the call.

Yes, it may be a bit too early to talk about earnings season, especially in the tech world. Apple, for example, will probably not release its full fiscal 2023 results for another four or five weeks.

But the summer quarter has officially ended for most companies in the US, Apple included. And amid market turmoil due to another leg higher in interest rates and a close encounter with a government shutdown, Apple stock (AAPL) holders might want to start projecting forward.

What To Expect of Apple in Fiscal Q4

According to Yahoo Finance, analysts are expecting revenues in the September quarter to shrink by 1% YOY. On the EPS side, however, the projected $1.39 would be higher YOY by ten cents, or about 8%.

Clearly, the Street is not too excited about Apple’s top line performance, but they seem to expect a bit more of the company’s bottom line. What will probably help Apple to turn unimpressive sales into decent, high-single digit EPS growth include:

• A heavier mix of service relative to product revenues. Apple’s management team has effectively guided for service revenue growth that will likely enter double-digit territory once again services year-over-year performance to accelerate from the June quarter”, whereas the segment grew 8.5% in fiscal Q3). The services business carries segment margins of over 70% that are roughly twice as large as product margins, in part due to a few nearly-pure-profits businesses that Apple runs.
• Expect Apple to keep retiring shares as it continues to aggressively buy back its own stock. For fiscal Q4, I project diluted share count to have dropped by 600 million shares in the past 12 months, which alone should boost EPS by 3 cents YOY.

Could Earnings Be A Catalyst?

I like to say that earnings season is a de facto catalyst. Whenever a company delivers financial results, guidance and other news, investors and traders rush to update their views on the stock, which often causes increased volatility and a jolt in share price in either direction.

This should also be the case of fiscal Q4 for Apple.

That said, the September quarter tends to be relatively small and unimportant for the Cupertino company. In the COVID-19 era, fiscal Q4 has represented 23% to 24% of full-year sales vs. 25% in 2019. In fact, some investors may already be anticipating the holiday quarter, which drives nearly one-third of Apple’s annual revenues.

If fiscal Q4 earnings season ends up being a major catalyst for Apple stock, it would likely be for two reasons only: (1) big surprise on revenues and EPS, to the upside or downside; or (2) fiscal Q1 guidance to be shared during the earning call. As usual, any positive or negative news on the iPhone (50%-plus of Apple’s revenues) could be a stock mover.

Keep in mind that Apple hardly ever, if ever, talks about future product launches or new technology under development on the earnings release or during the conference call.