5 Reasons Apple Inc. Is Looking Good

Apple is in good shape as it heads into Monday's quarterly report.

Jan 26, 2014 at 3:45PM

Apple (NASDAQ:AAPL) has a lot to prove on Monday afternoon. The consumer-tech giant reports its fiscal first-quarter results, and there's plenty riding on the report. The stock hit a fresh 52-week high last month, and even after pulling back in recent weeks it's still trading 6% higher than where it was the day after its fourth quarter was announced.

Let's go over a few of the reasons the market's holding out for an encouraging Apple quarter.

1. Growth will be back
After three quarters of year-over-year declines in profitability -- and flat net income the period before that -- analysts see a resumption of bottom-line growth at Apple. We're not talking about a lot of growth here. Analysts see earnings per share climbing just 2% to $14.09, and all of that could be the handiwork of having Apple's share repurchases push the outstanding share count lower. However, it will be a symbolic turnaround at the very least if Apple lives up to expectations, and that brings us to our next point.

2. Apple's been quietly beating Wall Street's profit targets
You wouldn't think a company with sluggish top-line growth and compressed margins would be landing ahead of where the pros are perched with their income estimates, but Apple was a stealth beater throughout fiscal 2013.

Let's go over the past year of earnings reports.

Quarter

EPS Estimate

EPS

Surprise

Q1 2013

$13.47

$13.81

3%

Q2 2013

$10.00

$10.09

1%

Q3 2013

$7.32

$7.47

2%

Q4 2013

$7.96

$8.26

4%

Source: Thomson Reuters.

These aren't astronomical victories. Apple's been landing just 1% to 4% ahead of the market projections over the past year. Once again, Apple buybacks could be factoring in to the outperformances. This still is a strong enough trend -- accelerating over the past couple of quarters -- to make the smart-money bet on seeing Apple earn more on Monday afternoon than the $14.09 a share the pros are forecasting.

3. Don't forget about China
Apple didn't start selling the iPhone through China Mobile (NYSE:CHL) until earlier this month. In other words, the impact of having Apple sell millions of incremental smartphones didn't kick in during the fiscal first quarter that ends in December. 

However, having a presence in China's leading wireless carrier should lead to a rosier-than-usual outlook when Apple reports. China Mobile moves the needle, even for a company as big as Apple. There should also be encouraging comments about the potential during the earnings call.

4. The iPhone product mix could expand margins
Unlike the prior year's generation, when discounted iPhone 4s and iPhone 4 devices sold briskly in comparison with the pricier iPhone 5, sales during this round have gravitated toward the iPhone 5s over the cheaper iPhone 5c.

That may make the gamble to go with the colorful and plastic-shelled iPhone 5c a bad bet if the goal was to make a dent in the entry-level market, but the end result is that the iPhone 5s doesn't cost $100 more to make than the iPhone 5c. That the product mix is skewing toward higher-priced iPhones with greater gross profitability could help both ends of Apple's income statement.

5. Wall Street's been inching their forecasts higher
Another welcome trend heading into tomorrow's report is that estimates for Apple's net income per share continue to move higher. Three months ago we were perched at $13.86 a share, near the $13.81 it posted a year earlier. A month later it was at $13.99. A month ago, $14.05. 

In short, Wall Street revisions have pushed us higher as perceptions of Apple's performance for the holiday quarter continue to improve. This is yet another reason to hold out for a beat on the bottom line.

Monday night could be a good time to be an Apple shareholder.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple and owns shares of Apple and China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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