Apple hit by possible production cuts

Apple’s shares have been slipping over concerns about iPhone sales growth, and the first-quarter figures will be carefully watched.

Apple will announce its first-quarter results on 26 January, and traders are anticipating revenue of $76.65 billion and earnings per share (EPS) of $3.23. That compares with last year’s fourth-quarter revenue of $51.5 billion and EPS of $1.96 respectively. The company will reveal its full-year figures in October, and investors are expecting revenue of $237 billion and EPS of $9.55, and these forecasts represent a 1.7% fall in revenue and a 3.5% rise in EPS.

iPhone sales continue to rise, which is fueling higher revenues and profits. The company’s expansion in China is going well as sales from the country nearly doubled in the past year, and new store openings are still going ahead despite the cooling of the Chinese economy. The CEO Tim Cook seems to be unfazed by the economic developments in China. Apple is winning over former Android customers, and that is also playing a big role in its success. A report from Nikkei spooked Apple investors, as it stated iPhone 6s and iPhone 6s Plus production levels could be cut by 30%, and the stock hasn’t recovered since the report was released in early January.

 Strong fundamentals

  Trailing 12M price/earnings Forward 12M price/earnings Price/book value Dividend yield Three-year dividend growth
Apple 10.51 10.15 4.52 2.15% 38.92%
Samsung Electronics 7.85 8.54 0.84 1.81% 36.84%
Verizon 11.66 11.2 13.76 5.02% 3.18%
Microsoft 20.2 18.07 5.24 2.54% 15.83%
NASDAQ 100 20.88 16.85 4.13 1.3% N/A


Apple is relatively undervalued judging by its price/earnings ratio when compared with other tech stocks. The forward looking P/E ratio tells us Apple can expect a small decline in future earnings, but the broader technology sector is facing a much larger drop in earnings. The high price/book value for Apple is something to be cautious about, especially when you take into account Samsung Electronics’ P/B value ratio. Apple pays a respectable dividend and the rate of growth is impressive even by the tech sector’s standards.

Short interest is on the rise
The number of short positions on Apple has increased by 10% since April (when the stock hit a record high) and the share price has dropped 29% since then. 

Analysts have high hopes 

  Buy ratings Hold ratings Sell ratings
Apple 45 6 1
Samsung Electronics 45 4 1
Verizon 16 16 1
Microsoft 25 10 4


Investment banks are exceptionally bullish on Apple, and equity analysts have a $141.53 price target for Apple, which is 46% above the current price.

Apple shares held above their August lows of $92.50, with a base forming around $95. If this can hold, then a bounce back to $100 could be in the offing, while a break above here targets $101 and then $103.80. A recovery in momentum could see the stock begin to push on back towards $119 over the longer-term, with the January 2016 dip being perhaps the best buying opportunity in Apple shares since early 2014. Conversely, a drop below $92.50 could see a test of support at $89.40, but below this we could drop as far as $82.90 in the longer-term. 

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