Apple: What's The Post-Earnings Play?

Key Points

• Shares have quickly shrugged off the headline miss. 
• The macroeconomic environment is improving. 
• Apple looks set to continue leading the wider recovery in tech. 

To pop as much as 8% from where they closed the day before earnings were released would suggest Apple Inc’s NASDAQ: AAPL report had hit the mark. But it wasn't quite simple in the immediate aftermath of it hitting the headlines on Thursday evening. Investors had been eagerly awaiting a glimpse into the numbers from the tech giant, whose shares had run up 15% in the fortnight previously as Wall Street seemed to be positioning for a big surprise. 

And with shares having traded down as much as 30% from last August’s high and close to their lowest level in two years, it’s an upside surprise that was needed. Let’s look at how it all played out and the pros and cons of getting involved now in the aftermath. 

Digesting The Numbers

First up, the numbers. The company’s top-line revenue was down 5.5% and short on the consensus, while Apple’s earnings per share were also light. So not a great start. The immediate response by the stock in the after-hours sessions was to drop 4% as the worse-than-expected report was digested.

It didn’t take long for the fingers to be pointed at the bugbear that’s hurt so many companies, tech and otherwise, in the past year; supply chain issues. Despite flagging back in November that some of their such as the iPhone 14 would be seriously impacted by these headwinds in China, analysts underestimated the impact. 

It wasn’t all doom and gloom, however. In acknowledging the difficult environment they’d been operating in, CEO Tim Cook said that the company remains "focused on the long term and are leading with our values in everything we do." He also highlighted an important milestone, sharing that Apple now has over 2 billion active devices as part of its installed base.

In addition, Cook told investors that Apple would have grown in the "vast majority" of the markets it operates on a year-over-year basis if not for the significant foreign exchange headwind, which was in the realm of 800 basis points. 

What was interesting is that despite opening down on Friday, by lunchtime, Apple shares had undone any selling weakness and closed well above their pre-earnings report. So what does that tell you? It echoes this theme we’ve been seeing in earnings reports from the past few weeks, where near-term and broader macroeconomic headwinds are hurting numbers. Still, Wall Street is becoming happier and happier to look past these at the stock’s longer-term potential.

With the Fed’s Powell starting to look like he might stick the landing and tame inflation without bringing on a recession, there’s been a marked increase in risk-on sentiment. Hence the pop in Apple’s shares which, at one point on Friday, were a full 25% higher than their January low. 

Getting Involved

If you’re an investor on the sidelines, you must consider getting involved. Wedbush’s Dan Ives said after the release that Apple’s growth story is "holding up much firmer than the Street had feared in this economically uncertain backdrop" and reiterated his Outperform rating. Wells Fargo analyst Aaron Rakers did the same, and his $185 price target points to a further upside of at least 20% from where shares closed on Friday. 

Were they to hit this in the coming months, it would put them back at all-time highs and all but reconfirm Apple’s position as the king of tech. Over the past year, Apple has been by far the strongest of the, for now, an infamous group of tech stocks known as FAANG. The likes of Facebook, or Meta Platforms Inc NASDAQ: META, even with their recent rally, are still down 40% in that timeframe, while Apple shares are down just 10%. 

Having weathered what’s looking like the worst of the storm in 2022, it’s clear that investors are backing Apple to lead any broad recovery in equities. Market beat’s Marketrank’s Forecast is also calling them a Moderate Buy, and it’s looking like this rare earnings miss will be little more than a bump in Apple’s ongoing recovery rally.