Apple (AAPL) earnings land after the market closes Tuesday, and they promise to deliver no shortage of catalysts to drive more upside in AAPL stock.
From the $3 billion AAPL spent to buy Beats to its new enterprise partnership with International Business Machines (IBM), there’s a host of subjects up for scrutiny in the Apple earnings release. That could steal some of the spotlight from the quarter just past.
But as for the bread-and-butter business of selling iPads, iPhones and Macs, Apple earnings could very well be pleasantly surprising — and if so, they’d deliver a nice pop for AAPL stock.
The third fiscal quarter is typically AAPL’s weakest, but the company still does tremendous business. Adjusted for a 7-for-1 stock split, analysts expect Apple earnings to rise to $1.23 a share from $1.07 in last year’s quarter, according to a survey by Thomson Reuters. Revenue is projected to improve by more than 7% to $37.93 billion from $35.32 billion.
Apple Earnings – iPhone to the Rescue
Analysts also expect iPhone sales to maintain the momentum they displayed last quarter. These sales should be driven by emerging markets, particularly China, where telecom China Mobile (CHL) is expanding its high-speed LTE network.
In its other key product lines, Apple earnings might show some sluggishness in sales of iPads and Macs, write analysts at Trefis. Industry data suggest a slowdown in the wider tablet market, as well as declining market share and sell-through rates for iPads. Mac sales are forecast to grow incrementally, as demand from China and overseas markets more than offsets lower business in the U.S.
Fortunately for anyone holding AAPL stock, the iPhone business holds the key to Apple earnings. And given the revenue and margin trends in that segment, Apple shouldn’t have trouble at least matching Wall Street’s top-line forecast.
Furthermore, analysts at Trefis note that AAPL has been very aggressive in repurchasing its stock over the past three quarters. A lower-than-expected share count — combined with in-line revenue and better-than-expected margins — could help Apple earnings beat the Street easily.
Although an Apple earnings beat would likely be good for AAPL stock, more important — as always — is the forecast. Analysts will be keen to hear about plans to integrate Beats, as well as AAPL’s partnership with IBM to develop apps for enterprise customers. The apps themselves aren’t likely to move the needle for AAPL anytime soon, but if IBM’s vaunted sales force becomes an effective hawker of iPads and iPhones, look out.
AAPL stock is up 18% for the year-to-date, beating the S&P 500 by 11 percentage points, and yet Apple shares aren’t expensive at all, trading at less than 14 times forward earnings. Meanwhile, there’s little reason to expect anything less than at least in-line Apple earnings results.
There’s always the unexpected, but it sure looks like Apple earnings have a better chance of giving AAPL stock a lift than of dragging it down.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.