Breakout

Bullish on Apple? Here’s What to Look for in Earnings Report

Breakout

Just nine months ago Apple's (AAPL) stock surpassed $700 a share. This high was driven by the release of the iPhone 5, the promise of exciting new products, and investors who were convinced the company could do no wrong. Heading into tonight's quarterly report, Apple is trading under $430 a share, the new products haven't arrived, and investors are convinced the company is incapable of doing much of anything — at least under current management.

Analysts expect Apple to report $7.31 per share on revenues of $35.1 billion compared to $9.32 per share on $35 billion in the same quarter last year. Scott Kessler of S&P Capital IQ has a Strong Buy on Apple with a $550 price target. In the attached clip Kessler says he wants to see two things from Apple tonight.

The first is that the company is getting a grip on those collapsing net margins. "If they indicate that gross margins won't deteriorate much further from the June quarter to the September quarter, I think that would be construed as a positive," Kessler offers, doing a nice job illustrating just how badly Apple's reputation and operations have been tarnished over the last year.

The second is regarding product release methods and dates. If there's a defining characteristic of CEO Tim Cook's tenure at Apple — other than the falling stock price — it's the company's coquettish approach to new product releases. Grown-up companies announce product release dates and are judged on their ability to meet those schedules by delivering quality product.

What Apple does instead is offer vague promises of great and exciting things to come followed by absolutely nothing. Cook has promised "incredible things" for almost two years, in which time he's delivered hardware updates and software tweaks. Apple televisions and wristwatches are theoretical. In terms of new product releases, Apple hasn't become just another company. They are much worse than average.

Kessler isn't expecting any breakthroughs tonight, but once again he suggests even modest improvements over past practices would be welcome. "Some greater detail about what might be coming or what the timetable is would be appreciated."

For years Apple boosted shareholder returns by giving analysts absurdly low-ball guidance then destroying expectations. In the last three quarters, the sky finally fell on the company that cried wolf. The question is whether or not investors will care enough to buy the stock if the clouds finally lift.

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