Apple Inc. (AAPL) Earnings Preview: In-Line Quarter Could Be Paired With Weak Guide

Apple Inc. (AAPL) Earnings Preview: In-Line Quarter Could Be Paired With Weak Guide
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Apple Inc. (NASDAQ:AAPL) is scheduled to release its next earnings report after closing bell on Tuesday, and most analysts are expecting an in-line December quarter with a possible miss on guidance for the March quarter. Of course if the iPhone maker guides for a weak second fiscal quarter, downward estimate revisions seem likely. The consensus estimates for the first fiscal quarter (December) currently stand at non-GAAP earnings of $3.23 per share on $77.4 billion in sales.

What to expect in Apple’s earnings report

Wall Street is looking for about 74 million to 76 million iPhone units, according to RBC Capital Markets analyst Amit Daryanani, although he said the Wall Street consensus is higher at about 77 million. For the March quarter, he pegs estimates at about 50 million to 52 million units. Analysts are expecting a gross margin of about 38.5% for the December quarter and adjusted earnings of around $1.90 to $2 per share for the March quarter.

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The RBC analyst doesn’t feel that any downward estimate revisions for the March quarter won’t threaten the “iPhone 8 supercycle thesis” most investors are banking on, as long as they’re no more than 2% to 4%. He’s positive on Apple Inc. (NASDAQ:AAPL) stock based on this thesis.

iPhone average selling price a key point

Daryanani believes that average selling prices for the iPhone will be a key talking point around the December quarter report. It’s widely believed that the iPhone 7 Plus is selling better than its smaller sibling, so most of Wall Street are expecting a strong average price here. However, he warns that currency headwinds are a wild card at this point and stand to pressure the average selling price.

JPMorgan analyst Rod Hall also expects the iPhone average selling price to be strong because of a greater mix of the iPhone 7 Plus, based on his supply chain checks. He said the mix could be as high as 45% to 50%, while he was previously estimating that only 40% of the iPhones sold were of the larger Plus variety. Like Daryanani, Hall also warned about currency headwinds partially offsetting the greater mix of Plus handsets.

Other factors for the earnings report

Hall also found signs that Apple Inc. (NASDAQ:AAPL)’s new AirPods are selling well, as Slice Intelligence data suggests a 26% share of the wireless headset market since they became available on Dec. 13. There’s still about a six-week wait time for them around the globe, although he believes the company has been boosting production. He pegs the value of every 1 million AirPods unit has a positive impact of 0.4% on earnings per share.

Another area of strength is app revenue, as Apple Inc. (NASDAQ:AAPL) said earlier this month that New Year’s Day was its single busiest day ever on the back of a record holiday season.

The JPMorgan analyst feels that Apple Inc. (NASDAQ:AAPL) stock is still “a strong value opportunity assuming the board will eventually pay a higher dividend.” He also supports the iPhone 8 supercycle view held by most analysts and investors. Additionally, he believes that the iPhone maker might have repurchased more shares than what most are expecting, as its outstanding share count fell by about 74 million between Oct. 14 and Dec. 30. This is a big improvement from the 31 million share decline observed in the year-ago period.

Trader bets big against Apple

There’s at least one trader who isn’t as bullish on Apple Inc. (NASDAQ:AAPL), as he’s placed a huge option bet that the company will take a hit based on its earnings report. According to MarketWatch, F.S. Comeau, who has taken a hit himself by placing risky bets, has vowed one last bold attempt to “erase losses and reach market riches.” Apparently, he’s used the funds he has left to buy bearish options on Apple Inc. (NASDAQ:AAPL) stock which could net him millions of dollars if he’s right—or place him further in the hole if he’s wrong.

In order to recoup his losses, he needs Apple Inc. (NASDAQ:AAPL) stock to tank by at least 20% on Wednesday. On the other hand, if Apple Inc. (NASDAQ:AAPL) stock moves to $128 or above, Comeau’s investment is gone.

Shares of Apple Inc. (NASDAQ:AAPL) stock edged downward by as much as 0.6% to $121.22 during regular trading hours on Monday.

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