North America

Earnings Preview: Apple Q4 2017 (AAPL)

By: Craig Bowles

Overview

Apple, Inc. (AAPL) is slated to report 4Q 2017 earnings after the bell on Thursday, November 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.

Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): Apple normally reports a “clean” number for comparison. The current Street estimate is $1.87 (range $1.79 to $2.01) (Source: Yahoo! Finance). Consensus was $1.86 three months ago.
  • Revenues: Company guidance is for $49.0 bln to $52.0 bln. Analysts expect an 8.6% increase y/y to $50.90 bln. Consensus was $49.42 bln three months ago.
  • Gross Margin: Company guidance is for 37.5% to 38.0%. (Press release only gives dollar amount to be divided by sales for the percentage.)
  • iPhone Shipments: Consensus is 47 mln. Back in July, JP Morgan dropped Q4 expectations from 49.5 mln to 42.2 mln citing OLED production delays and more recent news will likely spur more analyst adjustments.

Revenue Guidance:

  • 1Q 2018 Revenue Guidance: Analyst consensus is a 9.7% increase y/y to $85.91 bln (range $78.15 bln to $100.29 bln).
  • Apple’s trailing P/E of 17.7 compares to a five-year average of 13.5; Price/Book of 6.1 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 12.9 compares to a five-year average of 9.5.
  • Analysts view Apple with 41 (40 last qtr) Buy, 7 Hold, and 0 Sell ratings. (source: MarketBeat.com)
  • Insiders sold 1,402,010 shares in the last three months and 3,553,877 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 4.60%. Options are pricing in an implied move of 4.31%.

Recent News

  • 10/24: Apple’s older iPhone 7 models are outselling the recently launched iPhone 8 ahead of the early November debut of the premium iPhone X. Initial shipments of Apple’s highly anticipated iPhone X are expected to total around 20 million units, only half the planned amount for this year, according to a post on ZeroHedge.com.
  • 10/23: Bernstein’s survey of 1,112 iPhone owners shows 24% of respondents in the U.S., U.K. and China plan to buy an iPhone X. 73% of Chinese respondents agreed/strongly agreed they were excited for the X, despite only 26% purchase intent, according to a post on Barron’s.com.
  • 10/19: Wireless carriers in the United States and Canada have reported slow third-quarter customer upgrades to iPhone 8 and 8 Plus, which went on sale in September. Taiwan media reported a cut in iPhone 8 production, according to a post on Reuters.com.
  • 10/19: China is likely concerned about the security of the Apple Watch 3 when it comes with a cell plan, according to a post on Barron’s.com.
  • 10/10: RBC Capital Markets have Apple with an Outperform rating citing that legislative efforts are now focused around U.S. tax reform and AAPL could be one of the biggest beneficiaries, according to a post on Barron’s.com.
  • 10/02: Apple stock could still become the world’s first $1 trillion market cap despite disappointing sales of the iPhone 8. Apple is spending around $12 billion a year on research, twice the figure of four years ago. Investors are getting around 8% a year from dividends and buybacks, a good number when 10-year Treasuries are paying just 2.3%, according to a post on Fortune.com.
  • 09/26: Shaffer’s market research discovered two warning signs for Apple. First, Apple crossed below its 120-day moving average for the first time in 215 days, marking the fifth-longest streak since 2000, and the first streak of more than 100 days in over two years. Similar occurrences — or “signals” — in the past have been bearish for AAPL. Second, the equity has underperformed the broader Nasdaq Composite (COMP), a signal that’s historically preceded short-term weakness for the stock, according to a post on SchaeffersResearch.com.
  • 09/21: Warren Buffett discussed his decision to invest in Apple and not in Google at length at this year’s annual Berkshire Hathaway meeting. He explained that Apple is a consumer company more than a technology company, according to a post on Forbes.com.
  • 09/12: Apple HomePod will be released in December 2017 at a price of $349, according to a post on techradar.com.

Summary

The iPhone X goes on sale as a pre-order October 27th, and will be generally available on November 3rd. The iPhone 8 went on sale in September. Both are less favored than the iPhone 7 which Apple co-founder Steve Wozniak says is basically the same as the iPhone 6. Despite annual spending of $12 billion on R&D, the worry remains that Apple may have reached a ceiling in creativity. Increased stock buybacks have helped support the stock price. Insider selling picked up the last three months.  The company has beaten and missed earnings estimates by an average of 13c the previous four quarters. Estimize consensus for an EPS of $1.88 on revenue of $51.173 bln compares to analyst consensus of $1.87 on revenue of $50.90 bln. iPhone shipments and revenue guidance relative to expectations will be factored into the market reaction.

 

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