Apple is a market darling again

The company, which reports its quarterly earnings Tuesday, has once again become an investor favorite.

By MSN Money Partner Jul 21, 2014 2:25PM
Credit: © Stephen Lam/Reuters
Caption: File photo of the Apple Worldwide Developers Conference in 2013By Jay Yarow, Business Insider

Apple (AAPL) reports earnings on Tuesday.

A lot has changed since the company's last reported earnings at the end of April. 

  • Apple split its stock 7-for-1.
  • Apple paid $3 billion for headphones company Beats.
  • Apple hosted WWDW, its big developers conference, where it announced new Mac software, iOS 8, and a programming language called Swift.
  • Apple introduced a new lower-cost iMac at a $1,099 price point.
  • Samsung, Apple's biggest rival, announced earnings that were pretty bad: Sales were down 10 percent and operating income was down 24 percent.
  • Apple announced a big partnership with IBM (IBM) to boost enterprise sales.
  • Perhaps most important, if you're an investor, Apple's stock is up 26 percent since its last earnings report. 

The reason Apple's stock is up 26 percent is that last quarter Apple delivered monster iPhone sales. It sold 43.7 million iPhones, up 17 percent year over year, and well ahead of analyst expectations of 37.7 million.

Apple is "the iPhone company," but people don't have a lot of faith in the power of the iPhone. For all of 2013, people thought the iPhone was hanging by a thread. They saw the rise of Samsung and Android, and assumed that Apple was going to be demolished by low-cost, big-screen, good-but-not-great Android phones. 

Apple's 2013 holiday quarter confirmed people's worst fears about the iPhone business. Apple sold 51 million iPhones from October to December in 2013 versus 54.7 million expected by sell-side analysts and 56-57 million expected by buy-side analysts. The 51 million units sold was only 7 percent sales growth. 

That's why, when Apple delivered strong iPhone sales in the March quarter, the stock took off. It was proof that Apple could sell loads of iPhones and deliver strong growth. Investors didn't even care that Apple's iPad business has gone into the toilet. In the March quarter, Apple sold 16.35 million iPads, down 16 percent year over year, versus 19.7 million units expected by analysts.

Since April, analysts have become much more positive. According to the Bloomberg terminal, 46 Apple analysts rate the stock a "buy," 13 call it a "hold," and only four think it's a "sell." Citigroup (C), which was bearish on the stock, changed its analyst coverage and rated the stock a new "buy." JMP Securities upgraded the stock to "outperform" Monday morning. Other analysts have raised their price target. 

Part of the reason analysts have become more positive on Apple is that they're expecting a monster fall. Apple is expected to release two new iPhones with bigger screens, as well as the iWatch, which will be a brand-new wearable product, its first new product category since the iPad. 

Analyst Gene Munster of Piper Jaffray is confident Apple is going to deliver this quarter. He says in a note Monday that "the biggest risk is likely 'disappointing' September guidance," which would only happen if the iPhone was coming later than expected. And even then, it wouldn't matter because "we believe investors would ultimately look past it and refocus on new products (larger screen iPhone, iWatch, iPads) in the fall."

Normally, iPhone sales are really weak this quarter as people stop buying them in anticipation of the next model coming in a few months. Sherri Scribner at Deutsche Bank says that might not be a huge drag on the iPhone this year because "over the past year, Apple has added 51 new carrier relationships, including China Mobile (with 785 million subscribers) and NTT DoCoMo."

Overall, Scribner says, "We expect Apple’s fiscal Q3 2014 to be relatively unexciting, as both the iPhone and iPad are now well into their product cycles. We are modeling iPhone units of 36M, down 18 percent quarter-over-quarter, which is about in line with typical seasonality in front of a new iPhone announcement of down 16 percent quarter-over-quarter."

Citi's Jim Suva also thinks this quarter is something of a non-event. He says, "We do NOT expect Apple’s earnings on July 22 to be either a negative or a positive catalyst for the stock as we believe consensus accurately estimates EPS near $1.22."

Basically, everyone is waiting for next quarter when Apple unleashes its next line of products. That puts Apple in a great position this quarter. Unless it totally blows the quarter, investors aren't going to care. They have their eyes on the fall.

Here, via Piper Jaffray, are the numbers everyone will be watching for:

  • Revenue: $38 billion
  • EPS: $1.23
  • iPhone unit sales: 35-36 million, up 14 percent year-over-year
  • iPad unit sales: 14-15 million, flat year over year
  • September quarter revenue: $40.4 billion
  • September quarter gross margin: 37.5 percent

More from Business Insider
Jul 22, 2014 10:50AM
"The company, which reports its quarterly earnings Tuesday, has once again become an investor favorite."

The most favorite investor of Apple stock is the Company itself. Funny how you omit that very FACT. Apple's Board has increased its share repurchase authorization to $90 billion in April this year from the $60 billion level announced last year. No doubt they will even spend more in the future.

Jul 22, 2014 8:58AM
This remains junk stock pumped by two generations that cannot sustain an economy without Fed funding. 
Jul 21, 2014 6:52PM
Apple's products are overhyped and overpriced!
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