Apple Earnings: What to Expect and How the Stock May React
Apple reports earnings for its fiscal fourth quarter after the stock market closes Monday and, as usual, analysts expect results that are better than in past quarters and better even than their own expectations. Apple seldom disappoints Wall Street, but with the stock (AAPL) trading near all-time highs above $310 a share - up about 25 percent in just three months - any whiff of waning momentum in sales of iPhones and iPads could be treated harshly, and even business as usual could put a crimp in the ebullient mood.
Here are some preannouncement thoughts from analysts who follow Apple:
Steve Reitmeister, executive vice president of Zacks Investment Research, observed in a recent blog post that "analysts keep ratcheting up estimates" for Apple earnings as the report approaches. The consensus forecast is $4.02 a share, he said, "but the most recent estimates are all north of $4, with many in the $4.05 to $4.15 range." Despite having an ever higher hurdle to clear, Apple should produce "a big beat," Reitmeister predicted.
Richard Gardner at Citigroup (C) forecasts earnings for the quarter of $3.93 a share, but not really - he said the figure could come in 50 cents or more above that level as a result of stronger margins, thanks to reduced costs for components and stronger iPhone sales.
Gardner is calling for total revenues of $18.3 billion to $18.8 billion, and he has a $350 price target on the stock. One potential hitch: iPad sales may have been hurt, he said, by supply chain difficulties.
"Apple management is known for providing conservative future outlooks. However, we would note that guidance for [the latest quarter] was uncharacteristically more aggressive than the Street had anticipated. . . . With continued momentum in all product lines, as well as easing supply constraints for both iPhone and iPad, we see the potential for Apple to surprise to the upside on guidance again."
I've been cautious about Apple stock for quite a while, much to my embarrassment. The cringe-worthy details are here and here.
But with the price well into the $300s, the stock continues to be vulnerable to a negative surprise or even a neutral surprise - where developments unfold as expected, which no one ever expects - either in the earnings report today or related to some other event. Just because Apple has continued to climb and be a very profitable investment, it doesn't mean it's a safe one. Buying Apple at these levels is a risky proposition, and further gains in the stock without continued substantial gains in sales and earnings only increase the risk.
Later today, a digestion of the earnings report and the market reaction. Later in the week, a look at some companies that have higher growth prospects and cheaper valuations than Apple.
