Wall Street Highlights – Equity

MS anticipate that Apple's March quarter results and June quarter guidance will slightly exceed consensus expectations due to strong iPhone sell-in and a weaker USD. However, MS note potential downside risks to June quarter gross margins due to tariff costs, with China revenue expected to continue declining year-over-year in March. MS forecast March quarter revenues at $95.7 billion and earnings per share (EPS) of $1.64, slightly above consensus, driven by strong product pull-forward, a weaker dollar, and 12% services growth. MS expect June quarter revenues to align with street expectations at $89.3 billion, although gross margins could be 120 basis points below consensus due to tariff impacts.

In terms of capital return strategy, MS expect a low-to-mid single-digit year-over-year dividend increase and a $110 billion addition to buyback authorization, similar to the previous year. MS believe Apple's ability to manage tariff costs, accelerate component insourcing, and reallocate production outside China will help mitigate margin headwinds. MS also anticipate Apple will raise prices minimally to limit demand destruction, with the iPhone potentially seeing storage SKU adjustments to offset tariff costs.

MS emphasize that while Apple's March quarter is expected to be strong, the June quarter may see some EPS downside due to tariffs. MS predict a potential 5-6% below consensus for second half of calendar 2025 (C2H25) revenue and EPS estimates, suggesting that the market has not fully accounted for the pull-forward in demand and higher tariff costs. MS highlight the potential for a better-than-expected iPhone 17 launch and C2H25 results if new AI features are introduced or if Apple Intelligence gains approval in China.

MS examine Apple's long-term growth prospects, focusing on investments in AI, payments, cloud, health, and home markets. MS believe these areas, combined with the potential for increased spending per user, will drive sustained growth and value creation. MS project that Apple's market cap will grow even without price to free cash flow (P/FCF) multiple expansion, supported by continued growth in free cash flow generation.

MS raise their price target for Apple from $220 to $235, reflecting a 29x multiple on their new calendar year 2026 (CY26) EPS estimate of $8.07. MS express concerns that the earnings report may not address key debates, such as supply chain tariff risks, demand pull-forward, AI developments, and regulatory challenges in China. Despite these uncertainties, MS maintain an Overweight rating on Apple, citing the company's strong free cash flow conversion and underappreciated services growth as significant valuation tailwinds compared to other megacaps.

Stock: AAPL.US

Stock Rating: Overweight

12m Price Target: USD235.00 (Previous Price Target: USD220)