Apple earnings preview
Having spooked the market recently, Apple stock has lagged the broader market. As iPhone sales remain weak, can the firm convince investors that there is still more growth to come?
Apple is expected to report a 7.1% rise in earnings for the fiscal first quarter (Q1), to $4.17 per share, while revenue is forecast to drop 5% to $84 billion. It has beaten on earnings in eight of the last eight reports, and seven out of the last eight for revenue. On average, results day sees a move of 4.4%, while current options pricing suggests a move of 4.46%.
A warning on revenues for Q4 prompted a rout in Apple shares recently, and while there has been a recovery since then, it has been relatively anaemic when compared with other big names, and indeed with the headline Nasdaq and S&P 500 indices. This fall from grace was compounded by Apple’s decision to stop reporting iPhone sales, raising suspicions that this metric was already falling, and that the firm was trying to reduce the amount of bad news for investors to digest when earnings roll around.
Despite its attempts to focus on software, the iPad and other products, Apple continues to be driven primarily by iPhone sales. The product generates 60% of Apple’s revenue, though with around 700 million iPhones in use around the world the firm still has an impressive user base for replacements and upgrades.
Cloud services are becoming more important as a revenue segment, but they have a long way to go before they represent a meaningful element in earnings that can help offset lower iPhone sales.
Apple currently trades at 12.7 times forward earnings. The five-year average is 13.4; at the end of 2018 the forward price-to-earnings (P/E) was around 11, so some of the valuation premium has been removed. Nonetheless, Apple is still cheaper on a forward earnings basis than at any time since the end of 2016.
Apple’s rally off the lows of December has run into resistance around $158. Gains above this level have proven hard to sustain since 28 December. Rising trendline support from the January low around $142 means that we are likely about to see a significant outbreak of volatility soon. Apple stock has broken the sequence of lower highs seen in December, and near-term targets to the upside include $167 and $172. Meanwhile, a drop below rising support first challenges $150, and then down to $142 and the January lows.
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa 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.
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets