What Apple investors should make of stock's 'tricky setup' ahead of earnings

By Emily Bary

Investors don't necessarily need to 'step in front of' earnings, but BofA says they could buy any pullback ahead of 'biggest WWDC ever'

Apple Inc. is expected to beat expectations for its March quarter but deliver disappointing guidance for the June quarter, according to a Morgan Stanley analyst.

That prospect already seems priced into Apple's stock (AAPL), Morgan Stanley's Erik Woodring wrote in a note to clients Monday, but he nonetheless sees a "tricky setup" in light of recent market volatility.

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Apple shares have fallen 14% over the past three months, and sentiment has gotten more negative. Investors are looking ahead to the company's WWDC event in June that's expected to bring an artificial-intelligence announcement.

"As a result, there's a chance Apple could see a relief rally/squeeze higher on a 'better-than-feared' earnings report/guide," Woodring said. "This creates a tricky setup, and one we don't believe investors necessarily need to step in front of."

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But after earnings, due out May 2, there could be opportunities for investors to buy on weakness, he added. The June developer conference could be Apple's "biggest WWDC ever," in his view, and there's limited downside now to his "bear-case" valuation of $145 a share.

That level is 13% below $167, where shares were recently changing hands in Monday afternoon action. Meanwhile, there's 26% upside to his $210 base-case price target. Woodring has an overweight rating on the stock.

BofA Securities analyst Wamsi Mohan also acknowledged the prospect of strong March-quarter results relative to expectations but a weak June-quarter outlook.

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"The demand environment is weak and a lower guide for [the June quarter] could influence a pullback in shares," he wrote.

Still, he said "the stock is already reflecting this," while he continues to like Apple's generative-AI opportunities.

Mohan has a buy rating and a $165 target price on Apple shares.

-Emily Bary

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04-22-24 1452ET

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