Earnings Preview: Apple down sharply since last report amid iPhone concerns

theflyonthewall.com

Apple (AAPL) is scheduled to report Q1 results after the market close on Wednesday, January 23, with a conference call scheduled for 5:00 pm ET. Despite a sharp pullback since its last earnings report, the iPhone and iPad maker remains by far the most valuable technology company in the world, as measured by market cap... EXPECTATIONS: Analysts are looking for EPS of $13.44 on revenue of $54.73B, according to First Call. The consensus range for EPS is $11.97-$15.50 on revenue of $52.01B-$59.55B. Along with last quarter's results, Apple forecast Q1 EPS about $11.75 and revenue about $52B, both of which were far short of consensus at the time. In a note to investors this morning, noted tech analyst Gene Munster at research firm Piper Jaffray summarized the "buy side" expectations for some of Apple's key metrics in Q1, including projections for 50M iPhones sold, 24M iPads sold and gross margin of 39%. According to Munster, the buy side expects Q1 EPS of $13.73 on revenue of $57B, both of which are above consensus... LAST QUARTER: Apple reported Q4 EPS of $8.67 against estimates for $8.75 on revenue of $36B against estimates for $35.8B. The company said it sold 26.9M iPhones, 14M iPads, 5.3M iPods and 4.9M Macs in Q4. Apple reported its gross margin in Q4 fell to 40.0% from 40.3% in the same quarter of the prior year. During its Q4 earnings call, Apple forecast a sequential decline in gross margin in Q1 driven by new form factor changes. The company also mentioned that it was working to get costs down on the iPad Mini and be more efficient in manufacturing. The day after the company's Q4 report, Apple shares fell $5.54, or 0.91%, to $604.00... RESEARCH AND NEWS: Within the last several weeks, first DigiTimes, then The Wall Street Journal, reported that Apple cut its component orders for the iPhone 5. Since Apple's Q4 report, its shares were downgraded to Neutral from Buy at Citigroup on December 17 and to Sector Perform from Outperform at Pacific Crest on January 16. Numerous other research firms have cut their price targets on shares during the last three months, including JPMorgan, Merrill Lynch, Stifel Nicolaus, Scotia Capital and UBS. On the more positive side, Piper's Munster recently raised his forecast for Q1 iPhone sales to 50M from 45M and his margin estimate by 100 bps, noting commentary from AT&T (T) and Verizon (VZ) that indicated solid demand for the higher margin phone. Munster said Apple may guide toward Q2 revenue around $41B, which would be nearly 13% below the Street consensus, but noted that Apple has guided revenue 6%-13% below the Street over the last three quarters. Munster also said Apple's guidance tonight may shed light on the recent reports of component order cuts and that Apple shares have been down less as a function of valuation and more related to the lack of a product catalyst, such as a lower-tier iPhone or Apple TV. Piper Jaffray maintains an Overweight rating and $875 price target on Apple. Jefferies analyst Peter Misek also stated in a note to investors about a week ago that the firm is comfortable with its above Street estimate for 53M iPhones sold in the quarter. Jefferies' estimates for EPS and revenue were also well above consensus and the firm kept a Buy rating and $800 price target on the shares... PRICE ACTION: Since the day after last quarter's report, shares of Apple have declined over 16%. During the last week Apple shares have spent brief stretches below the psychologically and technically important $500 level, but in early afternoon trading ahead of tonight's report, Apple is up over 1% to ~$510.

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