North America

Earnings Preview: Apple Q2 2017 (AAPL)

By: Craig Bowles

Overview

Apple, Inc. (AAPL) is slated to report 2Q 2017 earnings after the bell on Tuesday, May 2nd. 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.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Apple normally reports a “clean” number for comparison. The current Street estimate is $2.02 (range $1.91 to $2.14) (Source: Yahoo! Finance). Consensus was $2.09 three months ago.
  • Revenues: Company guidance is for $51.5 bln to $53.5 bln. Analysts expect a 4.8% increase y/y to $52.97 bln (range $51.71 bln to $54.64 bln). Consensus was $54.03 bln three months ago.
  • Gross Margin: Company guidance is for 38.0% to 39.0%.
  • iPhone Shipments: Consensus expectations are 52 mln.

Revenue Guidance:

  • 3Q 2017 Revenue Guidance: Analyst consensus is a 7.6% decrease y/y to $45.57 bln (range $42.78 bln to $50.38 bln).
  • Apple’s trailing P/E of 17.1 compares to a five-year average of 13.5; Price/Book of 5.7 compares to a five-year average of 4.6; Price/Sales of 3.6 compares to a five-year average of 3.1; Price/Cash Flow of 11.9 compares to a five-year average of 9.5.
  • Analysts view Apple with 40 Buy, 8 Hold, and 1 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 1,066,725 shares in the last three months and 4,470,080 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 4.70%. Options are pricing in an implied move of 3.46%.

Recent News

  • 04/29: Apple is expected to report a second straight quarter with more than $7 bln in services revenue, according to a post on Marketwatch.com.
  • 04/27: Apple has held talks about launching a money-transfer service for iPhone owners, according to a post on Streetinsider.com.
  • 04/26: J.P. Morgan raises their outlook for 2017 handset shipments to 1.92 billion units, about 20 million higher than the prior estimate for 1.9 billion units. Sees 1.97 billion units for 2018, according to a post on Barron’s.com.
  • 04/25: Needham & Co. reiterated a Buy rating on Apple after raising estimates for the fiscal year ending in September to reflect “pent-up demand for the 10th anniversary iPhone.” Sees Q2 53.35 million iPhone sales, according to a post on Barron’s.com.
  • 04/24: Trial assembly of Apple (AAPL) iPhones in India may be delayed until May, according to a post on Barron’s.com.
  • 04/18: Markit thinks Apple will increase its dividend by 10% to 63 cents a share, which is normally coincides with Q2 results, according to a post on Barron’s.com.
  • 04/17: Pacific Crest is most concerned about the potential for complete elimination of fingerprint sensing for the iPhone 8 unless functionality problems are fixed, according to a post on Barron’s.com.
  • 04/12: Wells Fargo suggests Apple may have consequences for hampering Qualcomm (QCOM) contracts. Apple has put suppliers in a position where they may be breaching their own agreements with Qualcomm, according to a post on Barron’s.com.
  • 04/11: Apple’s MacBook no longer holds the top spot in Laptop Mag’s annual ranking and now ranks fifth, according to a post on Barron’s.com.

Technical Review

Apple shares are trading at a new all-time high after the previous earnings release helped push the stock through what had been a resistance area for 2015. Point and figure charts show little in the way of support above $128 following the swift advance. (Chart courtesy of StockCharts.com)

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Summary

Apple’s iPhone 8 is expected this fall. A dividend hike is expected with Q2 results. Increased stock buybacks helped support the stock price. Insider selling picked back up the past three months with valuation measures priced relatively high.  The company had beaten and missed earnings estimates by an average of 8c the previous four quarters. Estimize consensus for an EPS of $2.06 on revenue of $52.96 bln compares to analyst consensus of $2.02 on revenue of $52.97 bln. iPhone shipments and revenue guidance relative to expectations will be factored into the market reaction.

 

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