Can a strong Apple (AAPL) earnings report and confident guidance sustain its momentum? Apple shares have roared higher, driven by a combination of factors, such as renewed excitement for the company’s new iPhones and services growth.
The company is set to report fourth quarter fiscal 2019 earnings results after the closing bell Wednesday. Apple stock, which has surged almost 60% year to date, is the best-performer in the Dow Jones Industrial Average and continues to make new all-time highs. The stock earlier this month not only regained the $1T market cap threshold, it regained its status as the world’s largest publicly-traded company, topping Microsoft (MSFT).
What’s more, in terms of year-to-date stock gains, Apple is crushing its FAANG peers — Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOG , GOOGL). And what the company reveals Wednesday could create even more distance from the rest. Aside from the excitement in iPhones and services, investors are also more bullish about the company’s prospects as there are signs that the company is on better standing in China — its second-largest market.
In the three months that ended September, Wall Street expect the Cupertino, Calif.-based tech giant to earn $2.84 per share on revenue of $62.91 billion. This compares to the year-ago quarter when earnings came to $2.91 per share on revenue of $62.9 billion. For the full year, earnings are expected to decline 2% year over year to $11.67 per share, while full-year revenue of $259.03 billion would decline 2.5% year over year.
Wednesday’s Q4 results will cap off a fiscal year in which Apple’s top- and bottom-lines numbers are both expected to decline on an annualized basis, which hasn’t happened in almost 30 years. But that’s not what Wall Street will be focused on. The guidance will be what matters. This is because Q4 numbers will only account for about a week’s worth of iPhone 11 sales. And how Apple guide for Q1 will indicate how it expects its devices, namely iPhone 11, to perform over the holiday quarter. The anticipation of Apple's 5G phone is another reason for the stock appreciation.
“Ultimately investors appear to be owning the stock for the coming 5G iPhone cycle and ramping new services so even in the scenario of light December-quarter guidance,” noted Katy Huberty, analysts at Morgan Stanley who rates the stock at Overweight with a $289 target. In terms of revenue breakdown for the quarter, analysts are looking for $32.77 billion in iPhone revenue and $12.22 billion in Services revenue.
That means Services is expected to account for about 20% of overall revenue, which any number above that would be significant. Consensus also calls for $7.5 billion in Mac revenue, $5.94 billion in wearables, home, and accessories revenue, while iPad revenue is expected to be $4.67 billion. One other area of focus will be the company’s plans to account for its new Apple TV+ streaming service. How the management guides for Apple TV+ and its accounting on revenue will be of interest.
Last but not least, progress in China and the traction Apple makes in that region will be another major issue for analysts to gauge. To the extent China revenue can reaccelerate, combined with another solid showing in the Services segment and stronger hardware ASPs, not only will this affirm the strong surge in Apple stock, it will justify further gains ahead.
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