Apple bounces ahead of earnings

Despite some China worries, Apple’s stock continues to soar ahead of numbers on 21 July.

Source: Bloomberg

The titan remains on track to post a record annual profit, as iPhone sales in China continue to drive performance. The second-quarter saw sales in China overtake the US for the first time, with demand racing ahead by 70% compared to a modest 40% in the US. CFO Luca Maestri said that the firm would make additional investments in China, although he was careful to add that seasonal demand would mean that the pre-eminence of China sales over ones in the US would not be a constant occurrence.

iPad demand remains a problem, as sales dropped by 23% compared to a forecast decline of 17%. It has long been recognised that iPad sales will not reach the same dizzying heights as those of its smaller brethren. Apple’s own iPhone 6 has also proved to be an inadvertent drag on iPad sales, as customers choose the newer product for its lower cost and ability to make calls.

One investor that still has high hopes for Apple even after the stellar returns of recent years is legendary fund manager Carl Icahn. Mr Icahn continues to believe that the stock price does not fully take into account the potential for growth in coming years. He recently sold his position in Netflix, having seen the shares go up ten-fold in three years, and now believes that Apple offers a similar opportunity to that provided by Netflix. His price target is currently $203, which would itself be a gain of 62% from the current price.

When Apple announces its third-quarter figures, the market is anticipating revenue of $48.75 billion, and earnings per share of $1.78. The second-quarter numbers were well received, and the revenue was $58.01 billion, and the EPS was $2.33, and the market was anticipating $56.02 billion and $2.16 respectively. Apple will report its full-year figures in October, and the market is anticipating revenue of $232 billion and EPS of $9.04, and these forecasts equate to a 27% increase in revenue and a 40% rise in EPS.

Equity analysts are, unsurprisingly, very bullish on Apple, and out of the 56 recommendations, 39 are buys, 15 are holds, and two are sells. The average target price is $149.05, which is 18% above the current price.

The number of short positions being taken out on Apple has declined by 2% since the company reported its second-quarter numbers.

Apple’s share price hit an all-time high back in April, pushing above $135 (red line on chart) on two successive days before falling. During June and the early part of July it gave back more ground, with the gyrations in China’s stock market increasing worries that economic growth and consumer demand in that country was on the wane. However, on 9 July it neared the 200-day simple moving average, hitting a low of $119.23 before bouncing. Since then it has gained over 5%, and looks likely to move higher.

The weekly stochastic momentum index has yet to give a bullish crossover, but if the stock can manage a positive close this week ahead of earnings I am watching for just such an event, and would take that as a sign that the share price has found a bottom and that we will now see the price move back to $135 and reach new all-time highs. 

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