MorningWord 4/25/16: $AAPL – Earnings Call Waiting

by Dan April 25, 2016 9:33 am • Commentary

Apple (AAPL) reports their fiscal Q1 results tomorrow night after the close. While the stock is flat on the year it is down nearly 7% from its 2016 high made just a couple weeks ago That’s largely the result of Wall Street analysts tripping over eachother to lower their estimates on dimming sentiment for iPhone shipments in the quarter just ended. Per the 9to5Mac.com blog, Ming-Chi Kuo, Apple analyst at KGI Securities (who they bill as “reliable”) sees a worst case scenario for iPhone shipments in 2016 that could turn back the clock to 2014:

The report predicts that under the worst case scenario, Apple will ship 190 million iPhones during 2016, which is lower than the 193 million it shipped in 2014. In the best case scenario, the company could ship 205 million devices. That’s a decline of 18.1 percent and 11.6 percent year-over-year, respectively. Both of these numbers, however, are below analyst expectations of between 210 million and 230 million units.

As has been the case with other Apple watchers, Kuo thinks the iPhone 7 due out in September will be an incremental upgrade, and that the newly released smaller SE, which is really a souped up iPhone 5 will set the stage for a monster upgrade cycle in September 2017, per  9to5Mac.com:

Despite what looks like a slow 2016, Kuo has been predicting a monster year for iPhone changes in 2017. The analyst has predicted that Apple will refresh the iPhone design with an all-glass, iPhone 4-esque look. Additionally, the company is likely to make the switch to AMOLED displays and could also introduce a new 5.8-inch model.

Apple’s sales in the March quarter are expected to fall 10% year over year, and 31% quarter over quarter, marking the first yoy decline in the seasonally softest quarter and the largest qoq decline in more than 10 years, with consensus calling for the company’s first annual sales decline since the dawn of the iTunes/iPod age in 2003.

Despite the uncertainty, the options market is only implying about a 4.5% weekly move (most of it for Wednesday’s post earnings move), which is below the last quarter’s implied move of about 6%, and the actual one day move of about 6.5%.

One reason for expectations of a muted move this quarter compared to last quarter could be the fact that the stock has actually under-performed by a percentage point the S&P 500’s (SPX) 15.5% gains from their February 11th lows.  Quite simply, despite Wall Street analysts continued overwhelmingly positive stance (44 Buy ratings, 4 Holds and only 2 Sells with an average 12 month price target of $133, very near the prior all time highs at $134) investors just are not feeling it, as evidenced by the stock’s recent relative under-performance, and the fact the stock remains in correction territory down nearly 22% from its 52 week and all time highs, and still in a well defined downtrend:

AAPL 1yr chart from Bloomberg
AAPL 1yr chart from Bloomberg

We will be sure to have a much more detailed quarterly preview, but I thought it was important to highlight the possible change in analyst sentiment, especially given the stock’s recent decline and generally meh view towards the stock from the February lows.  And given Friday’s declines of 5.4% and 7.1% by GOOGL and MSFT (two other mega-cap tech stocks) following their earnings results, AAPL could be setting up for movement easily inline with the 4% one day implied move.