Apple Inc. (NASDAQ: AAPL) is set to report its fiscal second-quarter financial results after the markets close on Tuesday. The consensus estimates from Thomson Reuters are calling for $2.00 in earnings per share (EPS) on $51.97 billion in revenue. The same period from last year had $2.33 in EPS on $58.01 billion in revenue.

Two key analysts are making a cautious note on Apple. Although Merrill Lynch and Oppenheimer are not going completely bearish on it, they are still thinking that these earnings could be relatively soft. Considering the whirlwind of negative news around high-end smartphones from TSMC, Qualcomm, Largan and more, expectations are muted for the June quarter. Merrill Lynch is continuing to model 50 million iPhones for March and 44 million for June.

The brokerage firm is adjusting its mix to reflect the demand for the iPhone SE with its lower average selling price and gross margin. Merrill Lynch expects Apple to increase its share repurchase authorization during fiscal second-quarter earnings. As a result, the firm reiterated its Buy rating (but lowered its price target to $125 from $130) on the potential of a strong iPhone 7 cycle, and optionality afforded by a large cash balance to enter new addressable markets. Merrill Lynch also moved its fiscal 2016 estimates to $8.85 in EPS on $229 billion in revenue.

Merrill Lynch detailed in its report:

We model 50 million iPhone units for the Mar quarter and 44 million for the June quarter, and our unit estimates are marginally lower than the Street. … Our estimates are baking in an assumption of about 20% year-over-year decline in the base iPhone business in both the March and June quarters. Given the iPhone SE is supply constrained, we expect limited ability to drive upside in the June quarter. Lower volumes and mix is likely to create modest gross margin pressure in the June quarter somewhat offset by FX tailwinds. We expect gross margin guidance in the range of 38%-39%.

The Outperform rating on Apple from Oppenheimer reflects a solid outlook for the flagship iPhone products. While overall smartphone market growth has slowed in recent years, the brokerage firm sees good opportunities for Apple to gain market share in both developed and emerging markets due to its significantly superior user experience, human-computer interface and premium branding. Oppenheimer also believes Apple’s ecosystem is stronger than ever and provides increasing appeal to mobile device consumers. Apple’s substantial capital return program should offset the potential downside from slowing iPhone sales growth in coming years.

So far in 2016, Apple has been relatively flat and more or less in line with the broad markets. Over the past 52 weeks, this is perhaps the worst performing Dow stock, with shares down about 18%.

Shares of Apple were trading down 0.4% at $104.66 Tuesday afternoon, with a consensus analyst price target of $133.87 and a 52-week trading range of $92.00 to $134.54.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.