Apple’s $300 Billion Rebound Faces Reality Check With Earnings
“We struggle to look past the weak iPhone demand-related data points and recommend a cautious stance,” Wells Fargo says.
(Bloomberg) -- Apple Inc. has a lot to live up to with its earnings report coming on the heels of a rally that has added almost $300 billion of market value this year.
The shares are up 43 percent from a 21-month low touched in early January after worse-than-expected iPhone sales prompted the company to cut its fiscal first-quarter revenue forecast. On Tuesday, the stock slipped 0.7 percent at 9:32 a.m. in New York.
The recent rebound was partly driven by Apple’s new digital services. But Wall Street has grown increasingly skeptical of the gains. With only 22 of 46 analysts assigning buy ratings, the stock has the smallest percentage of bullish recommendations in at least two years, according to data compiled by Bloomberg.
“We struggle to look past the weak iPhone demand-related data points and recommend a cautious stance,” Wells Fargo analyst Aaron Rakers wrote in a recent research note.
Here’s what to look for in Apple’s fiscal second-quarter report, due after the close of trading Tuesday.
IPhones
Poor iPhone sales in China were a big reason Apple cut its forecast in January. Investors are keen to know if trends in that critical region have improved.
Apple’s iPhone sales are expected to total $30.5 billion in the fiscal second quarter, according to six estimates compiled by Bloomberg. That would be down about 19 percent from the same period last year.
“The big unknown remains China,” according to UBS analyst Timothy Arcuri. Given “low expectations,” Apple’s earnings report and forecast “should be fine,” he wrote in a research note.
Services
With iPhone sales shrinking, investors have become increasingly fixated on services revenue, which continues to grow quickly. Wall Street is anticipating sales of $11.2 billion in the fiscal second quarter, up 22 percent from the same period last year, according to data compiled by Bloomberg.
In March, Apple unveiled new digital services including video streaming and a mobile gaming subscription. The offerings “ushered in a new wave of monetization opportunities for Apple and provides users with more reasons to inhabit Planet Apple in coming years,” Monness Crespi Hardt & Co. analyst Brian White said.
5G
Apple ended all litigation with Qualcomm Inc. in April and agreed to start using the chipmaker’s modems again, likely including important new 5G versions. That ended a bruising two-year battle over technology that underpins all smartphones. The deal also rekindled speculation about when Apple will introduce a 5G iPhone.
Investors will be looking for additional details about the settlement, and any hints about Apple’s 5G road map.
Capital Returns
Apple has traditionally updated its capital-return plans with the fiscal second-quarter earnings report. This time, Apple could add as much as $100 billion to its share repurchase authorization and raise its dividend by as much as 16 percent, according to Loup Ventures’ Gene Munster.
Morgan Stanley’s Katy Huberty expects a $50 billion buyback increase and a 10 percent dividend boost.
Just the Numbers
- 2Q revenue estimate $57.49 billion (range $54.51 billion to $59.21 billion); forecast $55 billion to $59 billion
- iPhone revenue $30.5 billion (6 estimates compiled by Bloomberg News)
- iPhone units 41.1 million (8 estimates)
- iPhone ASP $722 (4 estimates)
- 2Q GAAP EPS estimate $2.37 (range $2.12 to $2.49)
- 2Q gross margin estimate 37.6% (range 37.0%-38.0%); forecast 37% to 38%
- 3Q revenue estimate $52.22 billion (range $50.04 billion to $54.26 billion)
- 3Q gross margin estimate 38%
Data
- 22 buys, 21 holds, 3 sells
- Average price target $203.67 (0.5% upside from current price)
- Implied 1-day share move following earnings: 5%
- Shares rose after 7 of prior 12 earnings announcements
- GAAP EPS beat estimates in 11 of past 12 quarters
Timing
- Earnings release expected 4:30 p.m. New York time; follow our live blog
- Conference call website
To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Alistair Barr
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