Earnings Outlook: Apple’s annual cash bonanza arrives as other companies cut investor returns due to coronavirus

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When Apple Inc. discusses its buyback program Thursday afternoon, it could briefly feel like any other April.

Apple AAPL, +3.45% traditionally makes updates to its massive capital-return program with its March-quarter report, and it’s expected to deliver another big announcement this year. Apple could add up to $100 billion to its buyback authorization, analysts say, while further boosting its dividend, even as other large companies cut buybacks and dividends in the face of the COVID-19 pandemic.

Apple sits on a net-cash balance of about $100 billion and has a goal of becoming net-cash neutral “over time” which analysts believe will allow it to plug away with shareholder returns even as the coronavirus crisis threatens more disruptions to its business. That’s a luxury many companies don’t have in this environment. Fellow Dow Jones Industrial Average components Intel Corp. and Chevron Corp. are among companies that suspended their buyback programs recently, and the federal government has barred companies that accept stimulus aid from paying dividends or conducting share buybacks until a year after they have repaid their loans.

Apple’s cash position also allows it to take advantage of a stock price that’s been depressed by the pandemic, with shares down 17% from their February peak. The company “has historically been very opportunistic with buybacks,” wrote Evercore ISI analyst Amit Daryanani. He said Apple scooped up shares at an average price of $190 last fiscal year. Its stock ended the period at about $220.

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Daryanani projects that the company will increase its buyback program by $75 billion to $100 billion, which he called “a logical decision given how attractive the current stock price is.” Apple added $75 billion to its authorization last year and $100 billion the year before that.

The company could also boost its dividend by 4% to 7%, he wrote, after a 5% hike a year ago. Daryanani rates Apple shares at outperform with a $325 target price.

All that discussion of capital returns is still likely to be overshadowed by the big reason this isn’t a typical March-quarter report. Apple is expected to post its biggest sequential revenue drop since at least 1998 and the company will detail the effects of the COVID-19 pandemic on its supply and demand trends, wrote Monness, Crespi, Hardt & Co. analyst Brian White .

“Everybody knows that fiscal Q2 results will not be good,” wrote Bernstein analyst Toni Sacconaghi, but investors will be looking for any recent signs of progress, as well as the company’s longer-term expectations for its recovery.

Apple recently launched its second-generation iPhone SE, a lower-cost device that became available Friday. Apple suggested with that move that it had reasonable confidence in its supply chain and demand trends, but commentary from wireless carriers showed that consumers have been hesitant to make smartphone purchases now that stores are closed.

Analysts surveyed by FactSet expect that Apple earned $2.29 a share on revenue of $54.8 billion for the March quarter, as factory shutdowns led to supply shortages and store closures pressured device sales. The FactSet consensus had been calling for $2.99 in earnings per share on $65.1 billion in revenue as of Jan. 31.

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Apple modeled $63 billion to $67 billion in revenue on its last earnings call in late January but the company pulled that forecast a few weeks later after the COVID-19 crisis worsened in China. The company no longer discloses iPhone unit sales, but the consensus forecast for that metric has slipped to 41 million from 48 million as of late January.

While Apple typically provides quarterly revenue forecasts, it’s unclear whether the company will do so this time around, according to analysts. Bernstein’s Sacconaghi said that Apple could have better visibility than many other companies into how the outbreak will affect the overall business, drawing from lessons in China, but questioned whether the company will have much incentive to give a forecast when others are halting their public projections.

Apple may see “no reason to set a bar if nobody expects one,” he wrote, though the company may “at least provide verbal commentary on how the quarter is trending.”

He’s pessimistic on June-quarter trends, writing that it seems “nonsensical” that the current consensus forecast calls for a 6% sequential drop in revenue, better than the 13% decline the company normally sees between the March and June quarters, given that Apple didn’t start to see major effects of COVID-19 outside China until the last few weeks of March.

Sacconaghi models a 30% sequential decline to $40.9 billion. He rates the stock at market perform with a $285 target price.

Read: Tech stocks have weathered coronavirus panic, but some analysts wonder if resilience can last

Morgan Stanley’s Katy Huberty is more upbeat, writing that the iPhone SE should help give a boost to June numbers while her survey data show that consumer interest in buying electronics is improving. She also sees indications from China that device production is above normal seasonal levels.

Huberty models $46.7 billion in June-quarter revenue but thinks Apple could give a rosier forecast Thursday. She has an overweight rating and $298 target price on the shares.

One key issue is whether Apple’s digital services remained resilient even as device sales slowed. “We expect strong demand for digital content such as music, movies, books and more, along with a voracious appetite for the App Store, heightened interest in Apple Music and increased use of iCloud,” wrote Monness, Crespi, Hardt, and Co.’s White, who rates the stock a buy with a $370 target.

He also thinks newer services like Apple Arcade and Apple TV+ got a boost. The company’s commentary on video in particular will be telling, as rival streaming services like Netflix Inc. and Walt Disney Co.’s Disney+ have attracted a rush of new subscribers during the crisis, but Apple’s service has less name recognition and a smaller content library.