Apple earnings preview via Bank of America

• Capital return, services growth and iPhone sales in focus heading into earnings.

• Bank of American analyst Wansi Mohan kept a BUY rating and $215 price target.

Apple reported its 2Q22 (March) after market close on Thursday, April 28. As in previous years, Bank of America analysts expect Apple to announce another massive $70 billion+ buyback authorization and a dividend increase (forecast to increase by 5%) during the earnings call.

Analysts continue to see Apple as a long-term winner, believing that shares have more room to rise due to significant catalysts such as monetizing its installed base better, advertising-related revenue growth, Augmented/Virtual Reality opportunity, and long-term growth in Services. Bank of American price objective stays at $215; reiterate BUY.

Due to supply chain impact, Bank of America kept its F2Q/F3Q iPhone estimates at 56mn/46mn, slightly below market expectations of 57mn/49mn. Analysts' forecast for iPad is 15.4mn and 13.2mn, which is lower than market ests of 15mn/15mn. Analysts reduce their Mac est for F2Q by 300K units to be in-line with IDC est of $7.1mn.

• Analysts model Gross Margin of 42.5% for F2Q which is at the low-end of guidance range 42.5-43.5% and compared to Street at 43%.

• Rev/EPS for F2Q are $92bn/$1.36 vs.Street at $93.9bn/$1.43.

• Rev/EPS for F3Q are $83.3bn/$1.13 vs. Street at $86.2bn/$1.24. F3Q is typically a weaker iPhone quarter and investors will likely look to catalysts such as Apple Worldwide Developers Conference and the next iPhone launch event in Sep.

App Store rev growth slowed to 6% y/y in F2Q vs. 13% y/y in F1Q. While the App store data was weaker in F2Q there are some offsets in Licensing revs that can still lead to a mid-teens growth for services. Analysts reduce Apple F2Q services growth estimate to 16% y/y, from prior 20% y/y, and maintain F3Q Services growth estimate at 18% y/y. After the June qtr. y/y compares get easier for Services (and app store) revs and the estimates could have some upside for F4Q.