North America

Earnings Preview: Apple Q1 2017 (AAPL)

By: Craig Bowles

Overview

Apple, Inc. (AAPL) is slated to report 1Q 2017 earnings after the bell on Tuesday, January 31rd. The earnings release is expected at approximately 4:30 p.m. ET with a conference call to follow at 5:00 p.m. that is webcast through Apple Investor Relations. Aside from Apple, look to the major US equity index futures, ETF’s, component providers, and competitors to move off of the upcoming results.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Apple normally reports a “clean” number for comparison. The current Street estimate is $3.22 (range $3.11 to $3.77) (Source: Yahoo! Finance). Consensus was $3.23 three months ago.
  • Revenues: Company guidance is for $76.0 bln to $78.0 bln. Analysts expect a 2.0% increase y/y to $77.42 bln (range $75.1 bln to $86.73 bln). Consensus was $74.65 bln three months ago.
  • Gross Margin: Company guidance is for 38.0% to 38.5%.
  • iPhone Shipments: Consensus expectations are 78 mln.

Revenue Guidance:

  • 2Q 2017 Revenue Guidance: Analyst consensus is a 6.9% decrease y/y to $54.03 bln (range $50.71 bln to $58.21 bln).
  • Apple’s trailing P/E of 14.4 compares to a five-year average of 13.5; Price/Book of 4.9 compares to a five-year average of 4.6; Price/Sales of 3.1 compares to a five-year average of 3.1; Price/Cash Flow of 10.0 compares to a five-year average of 9.5.
  • Analysts view Apple with 42 Buy, 7 Hold, and 3 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 533,973 shares in the last three months and 4,895,620 shares over the past year (source: NASDAQ.com). In April 2016, a 2-year plan was announced to spend $250 billion on stock buybacks and dividends.
  • Apple shares have a 1-day average price change on earnings of 4.65%. Options are pricing in an implied move of 3.78%.

Recent News

  • 01/25: Barclays downgraded Apple to Equal Weight from Overweight citing that iPhone users are “mixing down,” meaning, buying the last version of the thing rather than the newest, according to a post on Barron’s.com.
  • 01/20: RBC Capital sees a potential lift to Apple’s margins from a lawsuit claiming Qualcomm (QCOM) withheld $1 billion in rebates it had promised, according to a post on Barron’s.com.
  • 01/20: Macquarie Securities reiterated an Outperform rating on Apple after concluding that the company’s services business can boost profit margin in coming years, and in particular the App Store, according to a post on Barron’s.com.
  • 01/19: Apple’s iPhone 8 is coming in the fall of 2017 in celebration of the iPhone’s 10th anniversary, according to Macrumors.com.
  • 01/19: Apple wants a 15-year tax holiday on the import of components and equipment to India as incentive to manufacture phones there, according to a post on Barron’s.com.
  • 01/18: David Einhorn is bullish on Apple citing a potential benefit from repatriation of foreign cash and tax reform, according to a post on Barron’s.com.
  • 01/17: Apple AirPods sold out (six-week wait for delivery) everywhere even before the first TV commercials for the new wireless headphones, according to a post on Barron’s.com.
  • 01/13: Bernstein feels very comfortable recommending Apple into the iPhone 8 cycle but that it may not be something you can buy and hold for five years, according to a post on Barron’s.com.
  • 01/12: Wells Fargo reiterated a Market Perform rating on Apple but sees minimal upside from the December-quarter results and reduces estimates for March and June citing slipping demand for the iPhone, according to a post on Barron’s.com.
  • 01/11: Apple’s new MacBook Pros have been criticized for weak battery life, according to a post on Barron’s.com.

Technical Review

Apple shares made an all-time high on April 28, 2015 at $134.54; declined for six months to $89.47; and now has re-entered the 2015 resistance area again. Point and figure technicians have increased their bullish price objective to $162 from  $138. (Chart courtesy of StockCharts.com)

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Summary

Apple’s iPhone 8 is expected in the fall of 2017. While some investors such as Peter Thiel worry that Apple may have reached a ceiling in creativity, analysts mostly remain bullish even as they reduce iPhone shipments estimates for the March and June quarters. Increased stock buybacks helped support the stock price.  The company had beaten and missed earnings estimates by an average of 3c the previous four quarters. Estimize consensus for an EPS of $3.24 on revenue of $77.044 bln compares to analyst consensus of $3.22 on revenue of $77.42 bln. iPhone shipments and revenue guidance relative to expectations will be factored into the market reaction.

 

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