North America

Earnings Preview: Apple Q4 2018 (AAPL)

By: Craig Bowles

Overview

Apple, Inc. (AAPL) is slated to report 4Q 2018 earnings after the bell on Thursday, November 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 $2.78 (range $2.65 to $2.90) (Source: Yahoo! Finance). Consensus was $2.65 three months ago.
  • Revenues: Company guidance is for $60 bln to $62 bln. Analysts expect a 17.1% increase y/y to $61.59 bln. Consensus was $59.57 bln three months ago.
  • Gross Margin: Company guidance is for 38.0% to 38.5%. (Press release only gives dollar amount to be divided by sales for the percentage.)
  • iPhone Shipments: Consensus is for 47 mln. JP Morgan expects 46 mln. Gartner’s estimate is 49 mln. Most of the focus is on the holiday qtr.

Revenue Guidance:

  • 1Q 2018 Revenue Guidance: Analyst consensus is a 5.3% increase y/y to $93.01 bln (range $84.01 bln to $100.93 bln).
  • Apple’s trailing P/E of 19.6 compares to a five-year average of 14.1; Price/Book of 9.1 compares to a five-year average of 4.8; Price/Sales of 4.3 compares to a five-year average of 3.1; Price/Cash Flow of 15.1 compares to a five-year average of 10.1. Dividend yield of 1.3% compares to a five-year average of 1.8%.
  • Analysts view Apple with 27 Buy, 18 Hold, and 3 (1 last qtr) Sell ratings. (source: MarketBeat.com)
  • Insiders sold 1,127,039 shares in the last three months and 1,958,480 shares over the past year (source: NASDAQ.com). In May 2018, a $100 billion stock buyback program was announced following $210 billion since 2016.
  • Apple shares have a 1-day average price change on earnings of 3.83%. Options are pricing in an implied move of 5.97%.

Recent News

  • 10/29: Apple is holding a second event tomorrow to announce new versions of its gadgets ahead of the holiday shopping season and is expected to unveil an updated iPad and Mac, according to a post on theguardian.com.
  • 10/29: JP Morgan’s forecast is for 46 million iPhone shipments in the quarter which may help drive overall revenue to $62.3 billion, slightly above the $60 billion to $62 billion guidance range, according to a post on appleinsider.com.
  • 10/28: Apple’s slightly less-expensive XR at $750 becomes available this Friday and is just as fast and nearly as capable as its more expensive counterparts, according to a post on Barron’s.com.
  • 10/22: TF Securities analyst Ming-Chi Kuo notes iPhone XR pre-order demand is outpacing the sales of iPhone 8/8 Plus from last year and bumped up his total iPhone sales estimate from 75m-80m up to 78m-83m for the holiday quarter (that’s still below the 80-83 DigiTimes anticipated before the XS and XR were released), according to a post on 9to5mac.com.
  • 10/22: Bernstein notes search ads in the App Store are worth about $500 million right now and could reach $2 billion by fiscal 2020, according to a post on Barron’s.com.
  • 9/16: Possibly later this year, the hoped-for AirPods 2 with Siri integration and be much more waterproof will be announced, according to a post on inverse.com.
  • 9/13: Goldman Sachs reiterated a Neutral rating for Apple and cut its fiscal 2019 profit estimate to $13.77 from $14.53 citing the new iPhone XR entry-level version phone was priced at $749 versus the $849 estimated, according to a post on CNBC.com.
  • 9/12: Apple’s iPhone event announced the 3 new phones and watch as expected. Gartner and KeyBanc Capital Markets believe the $1,099 6.5-inch XS Max iPhone could push Apple past leader Samsung Electronics as the No. 1 vendor, according to a post on Barron’s.com.
  • 9/07: Apple says China tariffs would hit Apple Watch, Air Pods, according to a post on CNN.com.
  • 9/06: Apple’s Takeover of Shazam Is Cleared by European Regulators, according to a post on nytimes.com.
  • 8/29: Apple CEO Tim Cook has taken advantage of the company’s soaring share price and cashed in $121 million worth of stock awards, according to a post on Businessinsider.com.
  • 8/27: Apple plans to launch three new phones soon with the iPhone X design with new colors and bigger screens as expected by analyst Ming-Chi Kuo two months ago, according to a post on Bloomberg.com.
  • 8/16: Apple probed in Japan over anti-competitive behavior, according to a post on Nikkei.com.
  • 8/16: Hedge fund manager Dan Niles is worried the China trade war could hit the iPhone maker’s bottom line and shock investors who are capitalizing on its record run, according to a post on CNBC.com.
  • 8/14: TF Securities analyst Ming-Chi Kuo predicts Apple could launch glasses in 2020, Apple Car in 2023, according to a post on Businessinsider.com.
  • 8/13: Apple is delaying group FaceTime calls, one of the most-anticipated features in the next iOS, according to a post on Businessinsider.com.

 

Summary

As expected, Apple announced their new iPhone XS, XS Max and XR, and the Apple Watch Series 4. They will continue to sell the iPhone 7 and 7 Plus, 8 and 8 Plus, starting at $449. Possibly later this year or even tomorrow, the hoped-for AirPods 2 with Siri integration and be much more waterproof will be announced. There has been no mention of its long-delayed wireless charging pad. Slowing demand for high-end phones has been a worry among analysts. China’s devaluation could impact sales there. The XR phone is seen helping holiday sales next quarter, however. Increased stock buybacks have helped support the stock price, so valuations remain high despite the expectation for slowing of revenue growth to single digits in 2019. Insider selling ramped up the past three months led by Tim Cook. Analysts show a couple turned bearish since last quarter. The company has beaten earnings estimates by an average of 11c the previous four quarters. Estimize consensus for an EPS of $2.82 on revenue of $61.838 bln compares to analyst consensus of $2.78 on revenue of $61.59 bln. iPhone shipments will be less important than revenue guidance given the focus on next quarter’s holiday sales.

 

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