Apple (AAPL) - Get Report has an attractive set-up heading into its latest earnings report on Thursday, with the tech giant likely to provide better-than-expected revenue guidance for the June quarter, Morgan Stanley analyst Katy Huberty wrote in a note on Thursday evening.
Huberty based her assessment on China factory activity returning to normal levels and iPhone production looking to be ahead of estimates. Together with a strong balance sheet and the expected 5G iPhone later this year as a near-term catalyst, Huberty named Apple her top pick in the IT Hardware space. Morgan Stanley maintains an overweight rating on the stock and a $298 price target.
Apple shares on Friday morning were up 1% to $277.85.
Huberty noted that since the market peaked on Feb. 19th, Apple’s shares are down just 6% compared to a much sharper drop for other IT Hardware stocks and the S&P 500 overall. She attributed this to several factors, including that Apple withdrew its March quarter guidance early allowing for more realistic expectations, the expected launch of new 5G iPhones later this year driving upgrades, high customer loyalty rates, a strong yield between dividend payments and share repurchases and continued retail investor demand.
“We don't expect any of these factors to change following Apple's earnings report next Thursday evening and therefore believe Apple will continue to benefit from a flight to quality and secular winners in what is arguably the most uncertain market environment in over a decade,” Huberty wrote.
Huberty noted that she expects the March quarter results to largely be a non-factor given that the company’s supply chain disruptions are well-known, and also said that June quarter guidance will likely outperform Morgan Stanley’s below consensus forecasts.
“While there is a small risk that Apple does not guide for the June quarter, we believe the more likely outcome is that Apple guides to a wider range than typical, and recent data gives us confidence that the midpoint of management's revenue guidance range is likely to beat our forecast of $46.7B vs. consensus of $51.4B,” Huberty wrote.
Huberty also expects Apple to raise its share buyback authorization by at least $75 billion and to increase its dividend by a mid-to-high single digit percentage.