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Apple gears up for a crucial quarter

After undergoing a pullback, Apple stock may be poised to rally. But there are several key questions to answer.

All trading involves risk. Losses can exceed deposits.

It is remarkable to think that Apple, once untouchable, has been the worst-performing stock in the Dow Jones Industrial Average over the past twelve months, down 22% since its high of $136 in April 2015.

Expectations are for the tech titan to post earnings of $1.87 - $2.05 per share for the first quarter, with revenue in the region of $50 - $53 billion. This latter figure would mark a decline of around 10% year-on-year, the first drop since the second quarter of 2003.

However, with this well-flagged, the market may well take the news fairly well. The key will be the outlook for the next quarter, with some concerned that the firm may post forecasts below the expected $47.3 billion in revenue and $1.76 per share in earnings.

There are three important numbers to watch out for. Firstly, the usual focus on iPhone sales will remain paramount. 70% of the firm’s total revenue comes from its iconic product, but Apple has been warning that iPhone sales will be declining at least for the time being (especially when compared to March 2015’s incredible sales growth of 55% for iPhone sales).

Secondly, forward guidance is key. Apple bulls will be hoping that the firm can point to a good start for its new product, the iPhone SE (launched last month), with the lower price making it a potentially major player in developing markets.

In the last conference call, CEO Tim Cook noted that around 60% of all iPhone users were yet to upgrade their phones. If the SE model can spur this upgrade, Apple’s growth may find a new source of momentum.

Finally, some patient shareholders would like a discussion of dividend growth. Recent years have seen growth in the payout average 11.3%, so a figure in line with this would most likely appease investors. A bigger increase would send a signal that management remain confident about sales.

Having undergone a pullback over the past week or so, Apple shares, may, from a technical viewpoint, be poised for a bounce. If the price can hold above $105 then we look to a further rally in the direction of $108.50.

Good results could see the shares rally further, perhaps moving back to $112.50, the high for April, before breaking higher. If $105 is lost then the next destination becomes $100, which formed key support in the first half of March. 

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material 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 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. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research 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 and quarterly summary.

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