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What can the market expect from Apple’s quarterly results?


The earnings report for Apple (AAPL) is scheduled for release on October 27 2015. Analysts are anticipating an EPS of $1.88, up $0.46 from the same quarter last year, while projections for the crucial Christmas quarter will also be published. So can we expect the report to send the market into frenzy?
Major tech companies like Amazon, Google and Microsoft recently released their earnings. Amazon experienced sharp growth across major business areas such as the Amazon Web Services Cloud Platform, and contrary to expectations the company reported profits of $0.17 per share, and revenue spiked 23% to $25 billion.
Google’s parent company, Alphabet, recently announced a $5.1 billion share buyback and the stock rose 10% by the end of the trading day. Microsoft’s earnings were equally bullish, owing to strong demand for Microsoft Cloud Products. Q1 revenues from the Intelligent Cloud business spiked 8% to reach $5.9 billion; Microsoft’s business revenue increased by 14%. Now its Apple’s turn to surprise the markets, but there are mixed signals from the world’s premier technology company.

Projected revenues as significant as real earnings

These mixed signals include concerns about the supply chain at Apple, and weak sales of the iPhone 6S and iPhone 6S Plus. Whether these fears prove well-founded or not, traders should pay as much attention to Apple’s projected revenue for Q1 2016, to be published along with the Q4 2015 results.
This week is going to prove telling for the Nasdaq 100 index. Technology stocks have rallied recently on the back of strong earnings reports from three major tech companies: Microsoft, Alphabet and Amazon. For the week ending the 23 October 2015, the Nasdaq 100 index closed 2.27% higher at 5,031.86, just 1.5% below the year-to-date high and 4% lower than its best-ever level in March 2000. Microsoft and Intel have made strong gains since their last earnings report on August 21; Apple has lagged behind with sub-optimal performance at just 14.8%. This is marginally down on the overall gain of the Nasdaq 100 over the same period, which came in at 15.1%.
Here’s what analysts are expecting from the Apple earnings report tomorrow:

  • EPS of $1.879 per share
  • Revenues of $51.1 billion
  • Apple stocks are expected to appreciate by 5% by October 30

Apple Watch and Apple TV making waves?

Apple Watch has not received widespread distribution just yet. Since its launch a year ago the product was initially available only at Apple stores and via the website, but it has since been expanded to B&H Photo, T-Mobile, Best Buy, Sprint and Target. Apple faces stiff competition from its chief rival – Android Wear watches. Android and Apple devices are not fully compatible since they work best with their own brands. There are three unique Apple Watch models, priced between $349 and $399. There is also a stainless steel body which retails for $549, or $599 for the larger version. The Apple Watch Edition is the most expensive and retails for as much as $12,000. Sales have been relatively slow since this is a highly saturated sector, and prices are out of range for most consumers.
Apple TV pre-orders began today – at least for the new models. Apple TV 64 GB will be retailing at $200, while Apple TV 32 GB will be retailing at $150. Besides price, the difference between the two is loading time. The Apple TV that was released in January 2013 retails at $70 and is still available for purchase. Obviously, functionality on the older models is limited since the older models are not fully compatible with all the apps and innovative features that are available on the new models. Apple TV does not resonate with everyone, since there is no Amazon Video available, and likely won’t be. And there is stiff competition from Fire TV and Roku. Finally there is no 4K streaming, and in several years’ time this will be an important feature of this type of technology.

Uncertainty about Apple earnings

Apple posted strong earnings in recent quarters, but the company’s growth has lagged behind the other major tech companies of late. Consider for a moment that Intel appreciated by 30% since August 25, Microsoft appreciated by 30% since August 25, Facebook is up 23% and Amazon is up 28% in the same period. With Apple’s figures coming in at just 14.8% since August 25, it remains the laggard in the tech sector. This has generated a degree of anxiety about the earnings performance of this technology stock. If we look to the quarterly earnings history of Apple, there is however reason to be optimistic about the company:

  • In June 2015 the consensus EPS forecast was $1.80, while the actual figure was $1.85 (+2.78%)
  • In March 2015 the consensus EPS forecast was $2.19, while the actual figure was $2.33 (+6.39%)
  • In December 2014 the consensus EPS forecast was $2.60, while the actual figure was $3.06 (+17.69%)
  • In September 2014 the consensus EPS forecast was $1.30, while the actual figure was $1.42 (+9.23%)

History shows us that analysts and forecasters can afford to err on the downside, since Apple has consistently proven itself to be a strong performer. We have seen a sharp uptick in the price of Apple stocks from 14 October 2015 when they were trading just above $110 per share. In the 10 days since the stock appreciated by 8%.

How dominant is Apple in the tech sector?

Apple is first and foremost a titan among the tech stocks. It is one of the most significant components of the Nasdaq in terms of market capitalisation, revenue generation and global presence. For this week, the consensus recommendation for Apple is a strong buy, and the vast majority of Nasdaq analysts recommend it as such. There has been a sharp decrease in the company’s reported earnings, but in all instances since June 2014, quarter on quarter, the reported earnings have exceeded the estimate earnings. The 12-month price target range for Apple reflects a consensus price of $150.
Apple has generated 41.53% growth in 2015 compared to -3.2% for the rest of the computer industry. However, when it comes to price/earnings for 2015, Apple comes in at 12.65 and the rest of the industry comes in at 26.90. For 2016 the price/earnings ratio is estimated at 11.81 and in 2017 the price/earnings ratio is forecast at 10.96. Declining price/earnings ratios are not necessarily to be perceived badly, since a multitude of factors comes into play in determining this metric. One should always consider how much is being invested in order to generate $1 yield in earnings. In terms of sheer market dominance, Apple and Google remained the top-ranking technology brands by valuation. During Q2 2015, Apple managed to generate $10.7 billion in net income, compared to Google’s $3.4 billion. Despite net income, Apple still dominates when it comes to market capitalisation since the company’s number of outstanding shares places it in pole position.
Apple is also targeting China in a big way, and its latest initiative is a new clean energy programme that will generate low carbon emissions with sustainable growth prospects. In fact, 100% of all operations by Apple in China will be born of green growth. In so doing, Apple will avoid 20 million metric tons of pollution of greenhouse gases, right through until 2020. The company is also fostering energy efficiency in all manufacturing operations throughout China. This is an important barometer of Apple’s future ascendancy in Asia and the rest of the world.

What does the stock grant plan mean for Apple?

Apple’s Chief Executive Officer, Tim Cook, recently announced that all Apple employees would receive shares for free. This move has dovetailed with the concept that big business needs to assist the middle class in terms of growth and development. Apple has now offered everyone under its employ stock grants. The option to buy stocks at Apple has heretofore been limited to corporate employees, but now every employee is eligible.
Apple is seeking to become a strong proponent of corporate social responsibility to its stakeholders – its employees at all levels. This move is part and parcel of Apple’s push for technological, environmental and ethical change. It should not be viewed negatively by investors since Apple is sharing its success with the very people who have built the brand.
Brett Chatz
Intertrader.com
For more information, trading education and offers visit Intertrader.com
The content of this article is the personal opinion of the author and not Intertrader.com. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

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