North America

Earnings Preview: Apple Q3 2017 (AAPL)

By: Craig Bowles

Overview

Apple, Inc. (AAPL) is slated to report 3Q 2017 earnings after the bell on Tuesday, August 1st. 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 $1.57 (range $1.50 to $1.64) (Source: Yahoo! Finance). Consensus was $2.09 three months ago.
  • Revenues: Company guidance is for $43.5 bln to $45.5 bln. Analysts expect a 6.0% increase y/y to $44.92 bln (range $43.20 bln to $46.13 bln). Consensus was $45.57 bln three months ago.
  • Gross Margin: Company guidance is for 37.5% to 38.5%.
  • iPhone Shipments: Expectations are 42 mln to 50 mln with most analysts leaning to the low side of the range.

Revenue Guidance:

  • 4Q 2017 Revenue Guidance: Analyst consensus is a 5.5% increase y/y to $49.42 bln (range $42.65 bln to $52.54 bln).
  • Apple’s trailing P/E of 17.5 compares to a five-year average of 13.5; Price/Book of 5.8 compares to a five-year average of 4.6; Price/Sales of 3.7 compares to a five-year average of 3.1; Price/Cash Flow of 12.4 compares to a five-year average of 9.5.
  • Analysts view Apple with 40 Buy, 9 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 463,866 shares in the last three months and 4,508,073 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 4.21%. Options are pricing in an implied move of 3.87%.

Recent News

  • 07/25: Rosenblatt Securities predicts Apple will produce 25 million iPhone 8 units in September, and another 60 million in the holiday quarter, according to a post on AppleInsider.com.
  • 07/20: JPMorgan now thinks Apple will ship 42.2 million iPhones during the fourth quarter, down from their previous 49.5 million estimate, according to a post on pymnts.com.
  • 07/17: Apple iPhone 8 isn’t expected to be available until November or December due to production delays. September is expected to see the launch two other phones, the iPhone 7s and iPhone 7s Plus,” according to a post on CNBC.com.
  • 07/17: Morgan Stanley reiterated an Overweight rating on Apple, while urging investors not to worry about reported delays in the next iPhone, the supposed “iPhone 8” or “iPhone X,” according to a post on Barron’s.com.
  • 07/17: Samsung has displaced Apple as the world’s most profitable tech company and is leading the latest round with its sleek and edgeless Galaxy S8 as Apple seeks to impress with its 10th anniversary iPhone this fall, according to a post on Barron’s.com.
  • 07/12: Goldman Sachs reiterated a Buy rating on Apple given the next iPhone can ultimately pay off next year in higher profit. If revenue is forecast below $48 billion, it could imply the iPhone comes out in October, according to a post on Barron’s.com.
  • 07/11: Deutsche Bank rates Apple at Hold. The flagship iPhone 8 could cost more than $1,000. “A scenario where prices go up and demand goes up seems highly unlikely in our view,”, according to a post on Barron’s.com.
  • 07/11: Susquehanna Financial Group reports that Apple’s “adding too many features appears to be backfiring.” Contacts in Asia confirm Apple is struggling to integrate the fingerprint I.D. sensor underneath the device’s display, according to a post on Barron’s.com.
  • 07/07: Canaccord Genuity reiterated a Buy rating on Apple after a survey conducted in North America last month suggests sales of the iPhone remained “steady” and were even “improving later in the quarter,” according to a post on Barron’s.com.
  • 07/06: Qualcomm sued Apple for patent infringement and requested the ITC block any shipments to the U.S. of iPhones not using Qualcomm’s chips, according to a post on Barron’s.com.
  • 07/05: Instinet reiterated a Buy rating on Apple citing that technologies in the iPhone 8 itself, such as augmented reality, will give Apple plenty of room for innovation to follow, according to a post on Barron’s.com.

Technical Review

Apple shares made an all-time high in May at $156.65 after the previous earnings release helped push the stock higher. The stock spent the previous couple of years bouncing around without going anywhere, so the current upside breakout would be expected to go further and longer than most people expect. This is the third leg up of this expansion, so if similar to the first leg would suggest $175. (Chart courtesy of StockCharts.com)

Summary

Apple’s iPhone 8 is expected to be released in November or December instead of September, so Apple is expected to show a lower outlook (Morgan Stanley suggests 6 million units less) for the September quarter which will benefit December and March quarters. The worry is that Apple sales will plateau after iPhone 8 like the iPhone 6 in 2014. Increased stock buybacks have helped support the stock price. Insider selling shows little change in the full year amount.  The company had beaten earnings estimates by an average of 7c the previous four quarters. Estimize consensus for an EPS of $1.60 on revenue of $44.823 bln compares to analyst consensus of $1.57 on revenue of $44.92 bln. iPhone shipments and revenue guidance relative to expectations will be factored into the market reaction.

 

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