After the close of trading tomorrow Wall Street will once again turn its collective gaze upon Cupertino, California, in anticipation of another quarterly report out of gadget guru Apple Inc. (NASDAQ:AAPL). The company has had a relatively lucrative quarter, and, while Apple Watch sales plunged following its initial release, iPhone sales are expected to come in much better than initially forecast.
Overall, Wall Street is forecasting a 40% jump in Apple earnings, from $1.28 per share a year ago to $1.80 per share in the company’s fiscal third quarter of this year. Furthermore, revenue is once again seen rising in the double-digit range, up 31.6% to $49.26 billion on the quarter.
Historically, Apple has laid out several solid consecutive quarters in a row. In fact, the company has bested Wall Street’s estimate in every quarter for the past two years. It should come as no surprise, then, that EarningsWhisper.com reports that Apple’s third-quarter whisper number arrives roughly 8% higher at $1.95 per share.
But earnings are just part of the data that typically drives AAPL stock post earnings. Sales estimates for the iPhone have risen in recent weeks, with the target currently resting in a range of just shy of 50 million units to 54 million units. Meanwhile, iPad sales are seen slipping to about 11.5 million due in large part to the longevity and durability of early iPad models. Finally, the Apple Watch sales figures are seen in a range of about 3.5 million to 5 million units, with numbers varying broadly.
That said, the brokerage community remains extremely bullish on Apple. According to data from Thomson/First Call, 36 of the 49 analysts following AAPL stock rate the shares a “buy” or better, compared to 12 “holds,” and just one “sell” rating. There is room for improvement, however, as the 12-month price target of $150 represents a quite modest premium of just 15.7% to Friday’s close.
Turning to the options pits, AAPL has attracted a bit of skepticism heading into this week’s quarterly report. Specifically, AAPL’s July/August put/call open interest ratio comes in at 0.79, with puts attracting a bit more attention than usual for the stock. However, this ratio edged lower when we zero in on the weekly July 24 series, arriving at 0.65.
Click to Enlarge Overall, weekly July 24 series implieds are pricing in a potential post-earnings move of about 4.7%. This places the upper bound at $136.13, while the lower bound lies at $123.87. A breakout to the upside could see AAPL challenge overhead resistance at $135, while a decline should be held in check by support at the psychologically key $120 level.
2 Trades for AAPL Stock
Call Spread: Apple has a history of easily topping Wall Street’s estimates. The key this time around will focus on iPhone sales, which no one is worried about, and Apple Watch sales, which everyone is worried about. That said, both figures should arrive well within expected limits, with little in the way of surprise to the downside. For those looking to jump on the bullish bandwagon, the weekly July 24 series $131/$136 bull call spread has considerable potential.
At last check, the this spread was offered at $1.52, or $152 per pair of contracts. Breakeven lies at $132.52, while a maximum profit of $3.48, or $348 per pair of contracts, is possible if AAPL stock closes at or above $136 when these options expire.
Put Sell: On the other hand, Apple Watch sales could be much worse than expected, and a failure here could set investors back on their heels a bit. If you’re not feeling an outright bullish trade on AAPL, then a weekly July 24 series $120 put sell might fit the bill.
At the close of trading on Friday, this option was bid at 46 cents, or $46 per contract. As long as AAPL stock trades above $120 through expiration this Friday, traders pursuing this strategy will keep the $46 premium. However, if AAPL trades below $120 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $120 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
