Apple Inc. Stock: Is This A Buying Opportunity Ahead Of Earnings?

Apple Inc. (NASDAQ:AAPL) stock is under pressure ahead of earnings. Can AAPL stock bounce back?

Apple Inc. Stock Is This A Buying Opportunity Ahead Of Earnings

Shares of iPhone maker Apple Inc. (NASDAQ:AAPL) are on a downhill run ahead of its fiscal 2018 first-quarter earnings on February 1st, after market close. Apple stock has lost momentum and is down more than 6% from its all-time highs giving up all the gains of 2018. The news of production cuts of its flagship iPhone X model has dealt a heavy blow to investor sentiment when there are already some concerns among the section of the investing community. This section is of the view that the iPhone Supercycle may not be as big as it is being touted. And, now, this latest news also doesn't inspire much confidence for AAPL bulls. To reaffirm the faith in the iPhone Supercycle story, Tim Cook-led Apple Inc. needs to deliver strong earnings report and more importantly a strong guidance.
AAPL stock chart

What to expect from Apple Q1 earnings?

The Wall Street consensus expects Cupertino behemoth to report non-GAAP earnings of $3.83 per share on revenue of $87.06 billion. The Wall Street consensus implies a decent revenue growth of 11.1%, on a year-on-year basis and EPS growth of 47 cents from the year-ago EPS print of $3.36 a share, up nearly 14%. Apple CFO and VP, Luca Maestri in the last quarter earnings call had given a revenue guidance of $84 billion and $87 billion, with the midpoint of the range at $85.5 billion. The analyst estimate comes slightly above the high-end range of the revenue guidance but if the company has to dispell all the bearish sentiment, it has to come out all guns blazing and deliver revenue close the to the high end of analyst estimates.AAPL revenue chart

Given the company's last quarter performance and the high ASP of iPhones, many expect Apple Inc to deliver another earnings beat. The so-called earnings whisper number is also indicating a beat. As per the whisper number, Apple will report a non-GAAP EPS of $3.94, 11 cents higher than Wall Street consensus. However, Estimize estimate suggests earnings miss with their average EPS estimate of $3.78 per share. Having said all this, more than the earnings beat (or miss) the post-earnings action in Apple stock will be driven by the company's commentary on its latest iPhone models production targets and the next quarter guidance.AAPL EPS chart

Services segment is again likely to deliver strong performance.

Though there has been a lot of focus on the company's iPhone sales, Apple's less talked about fastest growing services segment could again deliver record revenues. The services segment includes revenue from AppleMusic, AppleCare, Apple Pay, licensing and other services. A latest report from analytics firm App Annie, suggests that iOS App store consumer spending hit record levels in Q4 2017, rising 20% YoY. iOS accounted for $11.5 billion of worldwide consumer spending in Q4 2017 and maintained its nearly 2x lead over Google Play. At the same time, a PWC research reports suggest strong growth outlook for digital music sales worldwide, which is a big plus for AppleMusic whose number of paid subscribers were up over 75% year-over-year in the September quarter. Apple's services segment is already larger than some Fortune 100 companies and is growing by double-digit percentage points on a year-over-year basis for ten quarters in a row. In the last quarter, Apple's services segment had set an all-time quarterly record of $8.5 billion in revenue, up 34% YoY. So, given the early signs, one could expect the record to be broken in the latest earnings release.

worldwide consumer spend by App store in Q4 2017

One could also see a strong performance by other products from the Mac and iPad segment, which saw strong double-digit sales last quarter, especially in the Asian markets of China and India. 2017 had been the best year for Mac sales, with the highest annual Mac revenue in Apple's history. The holiday season sales should give an impetus to both these product segments.

Higher ASPs can come to the rescue of Apple.

There has been a bearish sentiment surrounding Apple stock as many lead analysts have slashed their iPhone unit sales target for the March quarter. The iPhone unit sales target of Wall Street for the March quarter is 61 million. Toni Sacconaghi of Bernstein was the latest to slash iPhone unit sales target. The current analyst estimates for the March quarter revenue is $67.07 billion, a jump of 26.8% YoY. This is the highest jump in YoY in revenue growth over the last 8 quarters and this is what the iPhone supercycle every one is expecting. But with declining iPhone unit sale estimates, this is more looking a daunting task. However, including the Bernstein analyst, many in the Street believe that Apple can still pull off that number due to higher ASPs(average selling price) even with lower unit sales. The analyst estimates for the ASP for the iPhone segment is $757 for the first two quarters of fiscal 2018. This is $100 more than the average for the last four periods. We had already highlighted earlier in our past coverage how pricey iPhones make Apple Inc stock a strong buy. So, investors may not be overly bearish due to the recent negative press.

Playing Apple stock through earnings.

Despite the recent bearish sentiment, it is too early to pull the trigger on Apple stock. As highlighted in the post above, Apple Inc. needs to deliver a strong earnings report and more importantly a strong guidance to boost investor sentiment. However, at the same time, the recent weakness could be a good buying opportunity ahead of earnings. Investors are advised to take a look at AAPL technicals before making a move. The recent weakness has lead to many bearish crossovers, with a bearish Moving Average Convergence Divergence (MACD) crossover the latest, which is a popular momentum indicator used by technical traders. The MACD line fell below the '0' center line from above in a bullish move after yesterday's trade, which implies that the shares of Apple are losing momentum. Having said this, the next level of support for the stock is at its long-term 100-day simple moving average(SMA). Apple stock price is just little over a few cents from the 100-day SMA, which has acted as a strong support level in the past and the share price has rebounded on few occasions from the 100-day SMA. Investors would be advised to keep a close eye on this support level ahead of earnings.AAPL Technical chart

Apple stock is part of our top stock picks which have outperformed the Nasdaq Composite by over 130%. Interested in automotive stock? Then check out our top stock picks from the auto sector, which have beaten the S&P 500 by over 282%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.

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on waldorf-kras :

Neither waldorf-kras, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither waldorf-kras, nor the author have any business relationship with any of the companies covered in this post.

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