What one top tech analyst is worried about on Apple's stock into earnings

Published Thu, Apr 27 202311:04 AM EDT

Bernstein is cautious on tech giant Apple into earnings. Despite positive sentiment and with valuation hovering around its peak, analyst Toni Sacconaghi says Wall Street may be overshooting with estimates for third and fourth quarter revenue. The firm has a market perform rating on Apple stock with a price target of $125 per share, or 24% downside against Wednesday's close of $163.76. So far this year, shares of Apple have gained roughly 26%. "We worry that Q3 (and Q4) estimates may be too high, amid a FY Q2 that is helped by channel restocking and push-outs from FY Q1," Sacconaghi said. AAPL YTD mountain Apple stock could be riding too high on strong sentiment that may be unfounded, according to Alliance Bernstein. Wall Street consensus expects $84.4 billion and $93.6 billion in the third and fourth quarter, respectively, the firm notes. Bernstein is less convinced on the bullish trend, and forecasts $82.4 billion and $82.6 billion in the third and fourth quarter. Sacconaghi noted that Apple stock has outperformed expectations by 2,040 basis points after first quarter earnings. While positive on the surface, he says this is a similar trend that calls back to fiscal year 2019, when iPhone sales were weak and revenue stalled. "The pattern is especially noteworthy considering that consensus numbers did not bottom immediately following the Q1 print and have been further revised downwards since - yet, amid the downward revisions, the stock has continued to outperform," he said. And Sacconaghi says it remains to be seen whether or not Apple's success story over over the last few years was largely due to being a "Covid beneficiary," and worries that the sluggish slow revenue growth could continue into 2024. "On one-hand, AAPL's YTD move has surprised us and its valuation is full, making it unclear whether there is further room for multiple-driven upside,' Sacconaghi said. "While Q2 numbers are achievable, we also worry about Q3 and Q4 revenue growth and the potential for negative revisions to FY 23 estimates." Still, Sacconaghi thinks that Apple's guidance that calls for stronger margins is in the realm of possibility, on higher prices for the iPhone 14 Pro and Pro Max models and higher storage options. "Arguably, the set up from here looks good: we see an inline Q2 with potential upside to GMs amid mix and a favorable component environment," Sacconaghi said. — CNBC's Michael Bloom contributed to this report.