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Earnings look ahead – Apple

Apple’s Q3 figures will provide much excitement, although they could reveal that the tech giant is facing challenges on a number of fronts. 

Apple store
Source: bloomberg

Apple is expected to report $1.57 in earnings per share, and $44.67 billion in revenue, which would be year-on-year growth of 10.7% and 6.1% respectively. It is worth noting that the firm has beaten estimates in seven of the last eight quarters for earnings per share (EPS), but only four of the past eight quarters on revenue. Data from Bloomberg suggests that the average one-day move on results day is 4.5%, with current options pricing suggesting 3.4% move this time around.

Shipments of the iPhone are expected to be relatively weak, thanks mainly to poorer demand from China. The impending launch of the 10th anniversary iPhone is also expected to hit sales of existing models, as people wait to upgrade. Average selling prices could also come down slightly, thanks to Apple’s desire to reduce inventory of its older models.

Some component inflation is to be expected, and gross margin guidance for the quarter has been set at 37.5 – 38.5%, down from 38.9% for the same period 12 months ago. More expensive components, such as pressure sensitive screens, have made iPhones more expensive to build, so Amazon clearly remains sensitive to pressures from Android competitors.

Details of the iPhone 8 are likely to be sketchy at best, so disappointment could be running high. So far this earnings season stocks that have beat earnings have only seen a small increase, an average of around 0.4%, while those that miss EPS estimates have seen an average drop of 3.4%, according to data from Bespoke Investment Group.

The 2016 sell-off in Apple proved a great buying opportunity, after wedge breakout sparked a resurgence for the world’s largest company. The rise into new record highs throughout 2017 points towards a bright future for the firm. The May-June 10% drop in the company’s share price looked like an opportunity to buy in at an advantageous price, which proved to be the case. 

Apple weekly chart

However, the recent decline provides a somewhat questionable short-term outlook, the recovery seen throughout much of July has been negated with the break back below 14,891, thus creating a new lower low. While we are seeing the price recover for now, we would need to see an hourly close above 15,437 to negate the recent bearish break. As such, while the longer term outlook remains bullish, this short-term move threatens another leg lower if the price doesn’t break through 15,437. In the meanwhile, short-term upside seems highly likely, yet whether that will be a retracement or reversal higher remains to be seen.

Apple 4hr chart

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