Apple Q3 – things to watch for

Ahead of Apple’s numbers next week, there are a number of elements to watch out for as the company looks to build on its launch of the new iPhones.

Apple logo
Source: Bloomberg

Apple’s Q4 earnings on Monday will produce the usual market excitement associated with the regular chance to get a look at the performance of the pre-eminent smartphone manufacturer.

Adjusted earnings per share are forecast to rise by 10% over the year, reaching $1.30, while sales are expected to be up 6.4% over twelve months, to $39.88 billion. Short interest in the company’s shares has been declining steadily since its peak in July, and now stands at 1.63% of the available float.

In July, Apple indicated that revenue would be between $37 billion and $40 billion, while margins would be between 37% and 38%, which suggests an earnings per share range of $1.11 to $1.31. In a particularly encouraging sign, earnings estimates from analysts have been revised higher in recent weeks, with some expecting a figure as high as $1.36 per share.

Morgan Stanley recently suggested that the company would have shipped 38 million iPhones during the quarter in question, but that the new iPhone models would mean shipments in coming quarters are likely to increase, while the upgrade cycle is forecast to last ‘well into 2016’. Market share is also on the increase in the US, China and Australia, boosting shipments. Shipments in China are expected to rise as well, thanks to the delayed launch in that country, where regulatory approval has been slower in coming.

 

Gross margins are also expected to increase, thanks to lower-than-expected material costs for the iPhone, in part due to the new larger screen for the iPhone 6 costing a similar amount to the one on the iPhone5S.

Improved sales of the new iPhones should take the pressure of struggling iPad sales off the company, buying time for Apple to refresh this particular product line. The recent market volatility has seen the shares fall back below $100, indicating that for the moment the market does not think current performance justifies such a lofty valuation. However, support has so far been found around the 100-day moving average, the $96.50 area, and for the time being an immediate post-earnings target would be $99.20, with the September highs of $103.60 being the next target, should we see a sustained rally.

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