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Apple Earnings to Seal Fate of Stock for 2013

Jon C. Ogg

Apple Inc. (AAPL) is set to report earnings after the close on Tuesday. You have seen disappointing earnings reports from the likes of Intel Corp. (INTC) and Microsoft Corp. (MSFT), outlined below, and Apple simply has had no new products and no excitement to drive any interest in new owners for its pressured stock. The bar has been lowered and lowered for Apple in sales and earnings estimates. Based on what we see, it seems that this earnings report likely will seal Apple's fate, for better or for worse, for the rest of 2013.

Just last week we saw Argus lower its estimates on iPhone expectations. While this is just one firm, the consensus estimates have been coming down as well. The Thomson Reuters consensus estimates are $7.32 per share earnings and $35.01 billion in revenue. Just last week we saw that the consensus estimates of $7.31 in earnings per share, versus just over $9 only three months ago. The revenue consensus called for growth of a mere 0.2% to almost $35.1 billion. This is now considered to be no sales growth expected.

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The big question to ask is, what if Apple mirrors other giants with disappointing sales figures yet above expectations on the earnings per share front? Here is what Apple is up against for comparison:

  • Microsoft Corp. (MSFT) was considered a whiff on earnings, and its price drop was the worst seen against earnings in years. We noted: "The software behemoth reported adjusted diluted earnings per share (EPS) of $0.52 on revenues of $19.9 billion for the quarter. In the same period last year, the company reported EPS of $0.67 on revenues of $18.06 billion. The consensus estimate called for EPS of $0.75 on revenues of $20.56 billion."
  • Intel Corp. (INTC) was also a dismal representation of growth in technology. We noted on its earnings: "The semiconductor maker reported diluted earnings per share (EPS) of $0.39 on revenue of $12.8 billion. In the same period a year ago, the company reported EPS of $0.54 on revenue of $13.5 billion. Second-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.40 and $12.9 billion in revenue."

Now you need to look at the long-term chart below from Yahoo! Finance, and you will see that Apple's chart is in focus. The stock has been hugging its 50-day moving average, and the $422 price after a near 1% drop on Tuesday morning compares to a 50-day moving average of $429.54. Even if Apple manages to get back above that level, its more important 200-day moving average is up at $479.94. Since Apple has not been above its 200-day moving average since last April, there would seem to be almost a certainty that chartists and technicians would warn about a real selling level overhang up there.

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With Apple at $422.25, its 52-week trading range is $385.10 to $705.07. What is so ironic is that Apple has slowly become a significant value stock, now that it is so out of favor. If the company meets its earnings estimates, it trades at less than 11 times expected 2013 earnings, but note that the consensus earnings estimate of $39.32 per share was up as high as $41.20 only 90 days ago.

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