Apple Inc. (NASDAQ: AAPL) shareholders don’t have much to complain about given that AAPL stock has gained nearly 30 percent in 2017.
But if you hear a grumble or two about the iPhone 8 as we head into Apple’s fiscal third-quarter earnings report — due out after Tuesday’s close — save your shushing. The 10th anniversary of the iPhone has, so far, not been the party Wall Street expected.
On one hand, excitement over the upcoming iPhone 8 — which is supposed to kick off a so-called “supercycle” of upgrades similar to those following 2014’s iPhone 6 launch — has helped drive much of shares’ year-to-date gains. However, Tim Cook also blamed the iPhone 8 for sluggish fiscal second-quarter purchases, and mounting concerns about a release delay have seemingly put a ceiling on AAPL stock for the past two months.
That’s why the focus of Apple’s third-quarter earnings report likely won’t be earnings. Here’s what investors really should be honed in on.
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The headline numbers. For the record, analysts are looking for a modest 6 percent improvement to Apple’s third-quarter top line, to $44.89 billion. That’s expected to funnel down to a $1.57-per-share profit, up 10.6 percent year-over-year.
The biggest factor in those numbers, of course, will likely be what plagued Apple during its fiscal second quarter — how many would-be iPhone buyers are keeping their cracked, aging smartphones on life support because they want to wait for the iPhone 8 to blow their faces off.
The numbers that really matter. Every Wall Street analyst and Apple shareholder should be eyeballing Apple’s fiscal fourth-quarter guidance for a hint of what the iPhone 8 calendar looks like.
New iPhones typically are launched in September, which falls within Apple’s fiscal fourth quarter; thus, a low outlook could be Apple’s way of telegraphing an iPhone 8 delay.
Right now, a heap of analysts already are banking on that.
Cowen and Company, Pacific Crest and Morgan Stanley are among the analyst research outfits that have updated their expectations for the third and fourth quarters and/or fiscal 2018 based on supply checks and other reports that say the iPhone 8 will launch later than September.
Pacific Crest’s Andy Hargreaves, for instance, downgraded Apple in early June based on a likely delay, “shifting iPhone units out of FY17 into FY18” and decreasing its 2017 earnings estimates as a result. KGI Securities’ Ming-Chi Kuo said all the way back in April that the iPhone 8 launch may be pushed back to October or November.
In fact, so many analysts have loudly thrown themselves onto this bandwagon that investors may want to consider a couple other points of speculation.
[See: 9 Most-Loved Stocks in the Trump White House.]
The most rose-colored question is, “What if the iPhone 8 is on time?” Given the flood of reports, this outcome seems unlikely, but should Apple provide fourth-quarter guidance that implies a normal iPhone 8 launch, AAPL stock could crack like a whip. Shares limped their way out of last week, but they’re still just 5 percent off all-time highs of $156, and a rush of analysts readjusting their fourth-quarter estimates higher could send the stock through the ceiling and then some.
BMO Capital Markets’ Tim Long expressed a more nuanced version of that possibility last week, saying it expects two models (one standard, one premium) to be made available for pre-order “in September” — just in limited quantity for a couple of quarters while the company ramps up its production capacity.
Also worth asking? “How much would a weak fourth quarter outlook even matter?”
Bernstein’s Toni Sacconaghi hiked his price target on AAPL stock last week, from $160 to $170 — despite saying that a “big guide down” for the fourth quarter is possible. He only sees consumers becoming impatient and flocking to competitors should the iPhone 8 launch be delayed until November.
Moreover, even analysts convinced that the iPhone 8 will miss a September launch have mostly kicked the can down the road. Morgan Stanley’s Katy Huberty is now looking at boffo first and second quarters for 2018 and even believes other analysts, while optimistic, haven’t fully baked the “supercycle” into their models.
Apple longs should be encouraged by the mix of Wall Street’s still sky-high expectations for the iPhone 8 upgrade cycle and its wide resignation to the likelihood of an iPhone 8 delay. While any such announcement Tuesday still will spark widespread disappointment, the damage to AAPL stock should be limited.
More Earnings in Focus
Tesla (TSLA). July was supposed to belong to Tesla and the Model 3. However, an early-July second-quarter deliveries report yanked TSLA from all-time highs, and shares have been spending most of the month recovering. Perhaps August can start more smoothly. Tesla reports after Wednesday’s bell, and analysts expect sales to just more than double to $2.55 billion for the second quarter. However, those weak deliveries sent profit estimates from a 70-cent per-share loss three months ago to a current expectation for a $1.80 deficit. Baird’s Ben Kallo is especially pessimistic, calling for a $2.14 loss. That said, a beat — as well as any positive news on the Model 3 production front — could give the current rebound in TSLA stock additional life.
Under Armour (UA, UAA). Under Armour shares, off 60 percent since peaking in 2015, have been in a holding pattern since late January, when a disappointing fourth-quarter and weak guidance resulted in a quartering of the stock. Expectations for the second quarter aren’t great, with Wall Street looking for 7.6 percent revenue growth to $1.08 billion on Tuesday, as well as a 6-cent loss following the year-ago period’s 1-cent profit. UAA still might miss that low bar. Raymond James analysts recently warned about a higher percentage of discounted items over the past couple months, as well as Foot Locker’s lack of positive commentary about Under Armour products in May earnings call.
This Week’s Earnings Calendar
Monday. Pandora Media ( P), Sanofi SA ( SNY)
Tuesday. Allstate Corp. ( ALL), Apple, BP plc ( BP), Denny’s Corp. ( DENN), FireEye ( FEYE), Frontier Communications Corp. ( FTR), HCP ( HCP), Pfizer ( PFE), Phillips 66 ( PSX), Royal Caribbean Cruises Ltd. ( RCL), Shopify ( SHOP), Sprint Corp. ( S), Under Armour
Wednesday. 3D Systems Corp. ( DDD), AutoNation ( AN), Cardinal Health ( CAH), Ferrari NV ( RACE), Fitbit ( FIT), Groupon ( GRPN), Humana ( HUM), Metlife ( MET), Mondelez International ( MDLZ), Southern Co. ( SO), Square ( SQ), Sturm Ruger & Co. ( RGR), Symantec Corp. ( SYMC), Tesla
Thursday. Clorox Co. ( CLX), Consolidated Edison ( ED), Dish Network Corp. ( DISH), Etsy ( ETSY), Gannett Co. ( GCI), GoPro ( GPRO), GrubHub ( GRUB), Kellogg Co. ( K) NRG Energy ( NRG), Regeneron Pharmaceuticals ( REGN), Shake Shack ( SHAK), Yelp ( YELP), Yum! Brands ( YUM)
[See: 7 of the Best Stocks to Buy for 2017.]
Friday. Cigna Corp. ( CI), Toyota Motor Corp. ( TM)
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Will Apple Inc. (AAPL) Finally Put an End to iPhone 8 Speculation? originally appeared on usnews.com
