Will Apple, Inc. Crush Estimates Later This Month?

Mark your calendar. Apple earnings are coming later this month. Can Apple surprise the Street again?

Jul 3, 2014 at 12:00PM

Last quarter, Apple (NASDAQ:AAPL) surprised investors when it reported revenue above analysts' consensus estimates. Since then, shares have soared about 20%. With third-quarter results approaching, is Apple about to deliver more upside surprise?

Apple Store China

Soaring iPhone sales?
Mark your calendar. On Monday, Apple posted the date for its third fiscal quarter earnings release: July 22.

Apple Q

Screenshot from Apple's Investor News site.

The key metric to watch, as has been the case since the launch of the iPhone in 2007, will be smartphone sales. The iPhone accounts for 57% of the company's total sales and an even larger portion of operating profits. The performance of the segment, therefore, will move the needle on the overall bottom-line results.

In Apple's first fiscal quarter of 2014 (the important holiday quarter), Apple's low year-over-year iPhone sales growth worried investors. Unit sales only grew 6.7%, year over year. Fortunately, with the help of new carriers in China and Japan, that growth rate accelerated to 16.8% in the second quarter.

What kind of growth could we see in the fiscal third quarter? The consensus estimate is for a slightly slower growth rate of 12.1%. But one analyst, who has proved to be meaningfully more accurate than the consensus estimates since she debuted her AlphaWise survey, has much bigger expectations. Morgan Stanley analyst Katy Huberty predicts that Apple sold 39 million iPhones during the quarter, or year-over-year growth of 25%.

Iphone

iPhone 5s. Source: Apple.

Whether Huberty is close to the mark or not, there's definitely a good chance Apple will be reporting some solid numbers for its most important segment during the third quarter. In Apple's second fiscal quarter of 2014, the company had only just started rolling out phones to China Mobile, the world's largest carrier. As the carrier continues its rapid expansion of its LTE network in China, pent-up demand for the iPhone could prove to be a big driver of sales for Apple.

Also, the addition of NTT DoCoMo, Japan's largest carrier with the iPhone 5s launch, should help year-over-year sales of the iPhone. In the year-ago quarter, the carrier didn't yet sell iPhones.

A disconnect between growth and valuation?
If Apple does, indeed, post 25% year-over-year growth in unit iPhone sales, the disconnect between Apple's conservative valuation and actual growth will look even more baffling.

Even without meaningful growth in the iPhone business, however, Apple's monstrous share repurchase program alone is helping Apple boost EPS. Add in potentially around 20% plus growth in year-over-year iPhone sales next quarter and the stock looks fairly enticing considering its underwhelming P/E ratio of 15.6.

AAPL PE Ratio (TTM) Chart

AAPL P/E Ratio (TTM) data. Source: YCharts.

Beyond this quarter's results, however, will be a much bigger story. Apple has said its pipeline is stuffed with a hot, new line of products -- one of which is likely to bring the Apple brand to an entirely new category. But given Apple's historical performance of product launches and ventures into new categories, this bigger store is likely yet another catalyst for the business beyond a potentially excellent third quarter.

Combining a likely solid third quarter, new products, and a conservative valuation, the risk-reward profile for Apple stock is still looking favorable -- even with the stock just 7% off its all-time high.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour. (That's almost as much as the average American makes in a year!) And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Daniel Sparks owns shares of Apple. The Motley Fool recommends and owns shares of Apple. It recommends China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers