Apple Inc. (NASDAQ:AAPL) is hurting. The company is facing rising bearish sentiment surrounding its next iPhone iteration thanks to mounting reports about delays, and other business segments — like the iMac, iPad and Services — haven’t stepped up enough to fill the void. Apple does have a chance to stem this rising tide of pessimism in AAPL stock just two weeks from now, when it reports its fiscal third-quarter earnings figures.
But it’ll need something special.
Fundamentally, Apple has a strong track record heading into next month’s report. The company has topped Wall Street’s consensus estimates in the past four quarters. Currently, analysts are expecting a third-quarter profit of $1.57 per share, up 10.5% from the same quarter last year. Revenue is expected to come in up 6% year-over-year at $44.92 billion.
That said, while Apple should handily top these figures, AAPL stock analysts and shareholders will be looking for any information on the newest iPhone, especially with reports swirling around the financial media that many of the rumored features will be absent and that technical issues are delaying the release until October.
Additionally, Services revenue will be closely scrutinized, as many analysts have hung their hats and revenue projections on Apple Services accounting for a larger portion of the company’s bottom line.
Sentiment and Options
As for sentiment, EarningsWhispers.com reports that the whisper number for Apple’s third-quarter report rests at $1.61 per share, four cents better than the consensus. What’s more, Wall Street analysts are also quite bullish on Apple’s prospects.
Currently, Thomson/First Call reports that 33 of the 45 analysts following AAPL stock rate the shares a “buy” or better, with a consensus 12-month price target of $159.13. There is room for both upgrades and price target increases, but only if Apple can show the company is back on track with its iPhone release and services income.
Click to Enlarge Turning to the options pits, we find a wave of pessimism surrounding Apple’s quarterly report.
Specifically, the Aug. 4 put/call open interest ratio currently rests at a bearish reading of 1.33, with puts easily outnumbering calls among options most affected by Apple’s earnings. This is an unusual development for AAPL options, as calls have historically been favored heavily heading into such events.
Overall, Aug. 4 implieds are pricing in a potential post-earnings move of about 4.6%. This places the upper bound at about $157, while the lower bound lies at about $142.
From a technical perspective, a rally would be a major win for AAPL stock, as the shares have spent the past month languishing below resistance at $150 and their 50-day moving average. A breakout above this resistance could bring an influx of techincal buyers that should bolster a post-earnings rally.
Meanwhile, a pullback to $142 would breach short-term support at $145, but long-term support near $140 should hold firm barring any unexpectedly bearish developments.
2 Trades for AAPL Stock
Call Spread: Apple has a habit of pulling through when it comes to earnings, and I expect positive news on the iPhone front alongside an earnings beat. Traders looking to take advantage of a post-earnings breakout might want to consider a 4 Aug $152.50/$155 bull call spread.
At last check, this spread was offered at 77 cents, or $77 per pair of contracts. Breakeven lies at $153.27, while a maximum profit of $1.73, or $173 per pair of contracts, is possible if AAPL stock closes at or above $155 when Aug. 4 options expire.
Put Sell: If an outright bull call play makes you nervous, then an out-of-the-money put sell may be more to your risk level. Along those lines, a 4 Aug $140 put sell might be a way to capitalize on Apple’s technical support.
At last check, this put was bid at 65 cents, or $65 per contract. The upside to this put sell strategy is that you keep the premium as long as AAPL stock closes above $140 when Aug. 4 options expire. The downside is that should Apple’s shares trade below $140 ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $140 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
