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Apple share price: what’s the outlook for the tech giant’s stock?

Apple faces a tough quarter as it deals with the impact of trade wars and slowing sales in China. But the stock’s outlook seems to point to further gains.

Apple conference Source: Bloomberg

When does Apple report earnings?

Apple reports fiscal third-quarter (Q3) earnings (Q2 calendar) on 30 July.

Apple earnings preview: what does Wall Street expect?

Apple is expected to report earnings of $2.10 per share for Q3, down 8.5% over the year, while revenue is forecast to be relatively flat at $53 billion for the quarter. The firm has beaten estimates on both of these metrics in all of its previous eight reports.

Despite all its attempts to move beyond being the ‘iPhone stock’, Apple’s earnings are still driven by sales of this smartphone. The previous quarter witnessed a 17% fall in iPhone revenues, which hit overall sales by 5%. Trade wars remain a key worry, with investors worrying that the ongoing spat between the US and China will hit sales hard once again. In addition, pricing for the iPhone remains a concern. Other firms continue to snap away at Apple, with the rise of Huawei’s cheaper phones a particular concern. Previously, Apple’s cachet and brand were sufficient to allow it to price its phones at the premium end of the range. But now consumers have shifted away from iPhones in favour of cheaper models.

Fiscal Q2 (calendar Q1) earnings saw a 22% fall in Apple sales in China, as the trade war began to bite. China accounts for a fifth of Apple sales, so this figure will be closely watched for signs that Apple’s position in China is deteriorating.

As we head into earnings, it is worth noting that these earnings are usually the weakest of the four. Approximately 19.7% of earnings are generated in each quarter, compared to 23.2% for the March quarter, 22.1% for September and 34.9% for December. Apple’s performance is weighted heavily towards the H1 of the calendar year. Similarly, 15.6% of cash flow is generated in the June quarter, compared to 19.8%, 21% and 43.6% for the other three respectively. It is therefore important not to overstate weakness in this quarter. These earnings look back on a quarter dominated by fears of a US-China trade war. Those fears have not gone away, but the G20 meeting promised a revival of talks between the two powers. If tensions ease, then Apple may see a revival of growth. However, expectations are still high as we head into the earnings report. Apple currently trades at 16.3 times forward earnings – this is well above the five-year average of 13.6, but below the peaks of 17 times earnings seen in the H1 of 2018 and in April of 2019. The outlook for the coming quarters is therefore crucial. If Apple sees a lessening of China-related weakness then the stock may avoid a post-earnings fall.

How to trade Apple’s Q3 earnings

The average move on results day for Apple stock is 5.05%, according to data from Bloomberg. However, at present options pricing suggests a move of 4.2%. Of 48 analysts covering the stock, 23 have ‘buy’ recommendations, with an average target price of $210.21, a 3.7% premium to the current price. 20 analysts have ‘hold’ recommendations, with ‘five ‘sells’.

Apple usually sees little weakness in the wake of its Q3 earnings, with the stock’s seasonality pointing to further gains in August and early September, before some weakness as in late September.

Apple stock price: technical analysis

Technically speaking, we have been seeing Apple shares trading within a consolidation phase, with each rally seemingly finding it difficult to push past the 76.4% Fibonacci resistance level. We are back at that Fibonacci level once more this month, with the shares consolidating in recent weeks. The ability to push through this zone is going to be key here, with the ultimate break through $214.47 required to negate the bearish trading seen throughout Q4 2018 in particular. With momentum rolling over, short-term trading will be key in setting us up for the forthcoming weeks of trade.

Apple weekly chart Source: ProRealTime
Apple weekly chart Source: ProRealTime

On the short term, we can see a break below $202.81 as a tentative sign of weakness for the stock. With the price closing below the lower Bollinger Band, there is a possibility that we could start building bearish pressure. However, a decline below the $197.37 level would be required to bring about greater confidence of a wider, long-lasting period of weakness for the stock. Until that happens, keep an eye out for whether we see the price break through the recent high of $206.78 or not.

Apple four-hour chart Source: ProRealTime
Apple four-hour chart Source: ProRealTime

Apple’s quality continues to shine through

Too many analysts have rushed to predict Apple’s demise in recent years. Solid iPhone sales remain a feature of the firm’s performance, however, and while the US-China trade war has hurt performance, the stock has weathered the storm relatively well. Overall, while the price may struggle in the near term, Apple’s outlook continues to point towards further gains.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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