Category: AAPL

AAPL – Apple (AAPL) Option Traders Bearish After Earnings

After Apple Inc. (AAPL) reported that it had demonstrably beaten analysts’ expectations for its fiscal third quarter earnings results, option traders are taking actions that imply they think the share price will drift lower in the future. This may come as no surprise considering the AAPL share price fell 1.2% the day after the report was announced.

Apple reported earnings per share (EPS) of $1.30 and revenue of $81.41 billion, exceeding analysts’ predictions calling for EPS of $1.01 and revenue of $73.30 billion. Despite the big beat, Apple shares fell after executives warned that chip supply constraints could affect iPhones and iPads this quarter. Prior to the announcement, investors had bid up the share price, with a sizable number of call options in the open interest.

Option trading volumes indicated that traders had been buying calls and selling puts; however, option activity after earnings suggests that traders are pessimistic about AAPL’s share price after the tech giant beat analysts’ predictions. That’s because the price action has recently drifted lower, while option activity implies that traders are selling calls and buying puts. 

Comparing the price action between option trading activity and stock prices on the days following earnings shows some evidence to suggest that option traders may be pessimistic. This should not be surprising considering AAPL’s share price fell 1.2% the day after earnings, closing below its 20-day moving average. Additionally, put option activity increased, while call option activity decreased. This could happen because option traders believe that AAPL is overvalued at current levels and will trend lower in the near term.

Key Takeaways

  • Traders and investors sold shares in AAPL after the earnings announcement, as the stock fell 1.2% the day after earnings.
  • The share price of AAPL closed below its 20-day moving average.
  • Put and call option activity appears to be positioned for the price to fall.
  • The volatility-based support and resistance levels allow for a stronger move downward than upward.
  • This setup creates an opportunity for traders to profit from a reversal in the earnings-based share price movement.

Option trading represents the activities of investors looking to protect their positions or speculators who wish to profit from correctly predicting unexpected movement in an underlying stock or index. The actions of these investors and speculators imply a forecast for the weeks ahead, because option trading is a literal bet on market probabilities—a bet made by traders that are, on average, better informed than most investors. The key to taking advantage of this insight is to understand the context in which the price behavior took place. The chart below depicts the price action for AAPL shares on Friday, July 30, illustrating the setup after the earnings report.

Current Trends

Over the course of the past month, the trend of the stock saw AAPL shares moving in an extreme range, closing well above the 20-day moving average, before falling 1.2% the day after the announcement. The price closed in the middle region depicted by the technical studies on this chart.

The studies are formed by 20-day Keltner Channel indicators. These depict price levels that represent a multiple of the Average True Range (ATR) for the stock. This array helps to highlight the way the price has fallen from the extreme range to the middle range. This price move from AAPL shares implies that investors are not confident in Apple’s share price going forward.

Tip

The Average True Range (ATR) has become a standard tool for depicting historical volatility over time. The typical average length of time used in its calculation is 10 to 20 time periods, which includes two to four weeks of trading on a daily chart.

Chart watchers can recognize that traders were expressing optimism going into earnings, based on the price trend for AAPL remaining near the top range the week before the announcement. Chart watchers can also form an opinion of investor expectations by paying attention to option trading details. Prior to the announcement, traders appeared to be expecting that AAPL would move upwards after earnings.

Tip

The Keltner Channel indicator displays a set of semi-parallel lines based on a 20-day simple moving average and an upper and lower line. Because the upper lines are drawn by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price, then this channel indicator makes for an excellent visualization tool when charting historical volatility.

Trading Activity

The recent activity of option traders implies that they consider AAPL shares overvalued and have purchased put options as a bet that the stock will close within the box depicted in the chart between today and Aug. 20, the next monthly expiration date for options. The red-framed box represents the pricing that the put option sellers are offering. It implies a 70% chance that Apple shares will close inside this range or lower by Aug. 20. So sellers are only mildly bearish. However, buyers are snapping up this pricing, suggesting that buyers consider these options underpriced. Since the pricing implies only a 30% chance that prices could close below this red box, it appears that buyers are willing to take those long odds.

It is important to note that open interest on Friday featured over 5.3 million call options compared to over 4 million put options, demonstrating the bias that option buyers had, as traders favored calls over puts. This normally implies that option traders expect upwards price movement. After earnings, the volatility has decreased dramatically, but the number of put options in the open interest remains elevated, and the number of call options is increasing. Implied volatility for call options has been dropping, indicating that, although the number of call options traded has increased, they are being sold, rather than bought.

For the strikes at the money and one step either direction, the put open interest far outweighs the call open interest. Out-of-the-money put option volume declines at a much slower rate than out-of-the-money call volume, signifying that more traders believe that AAPL share prices will fall than those who believe share prices will rise.

The purple lines on the chart are generated by a 10-day Keltner Channel study set at four times the ATR. This measure tends to create highly correlated regions of strong support and resistance in the price action. These regions show up when the channel lines make a noticeable turn within the previous three months.

The levels that the turns mark are annotated in the chart below. What is notable in this chart is that the call and put pricing are in such a close range with plenty of space to run lower. This suggests that option buyers believe there is a greater probability for the share price to move lower in the weeks following the report. Although investors and option traders expected positive movement from the report, the share price moved a larger distance than it did after the last earnings report.

These support and resistance levels show a large range of support and resistance for prices. As a result, it is possible that there could be a large move in either direction in the near future. After the previous earnings announcement, AAPL shares fell less than 1% in the day following and continued to fall the following week. Investors may be expecting the same kind of move in price in the week after this announcement. With lots of room in the volatility range, share prices could rise or fall more than expected in the near term; however, there is more room in the volatility range to support a move to the downside.

Wrapping Up

Apple annihilated analysts’ EPS and revenue expectations. However, after Apple executives warned that global chip supply constraints could affect product supply in the next quarter, the share price fell. Investors reassessed their investments and sold shares of the company in the days following the announcement.

Option traders appear to be selling calls and buying puts, expressing a bearish outlook. The share price activity provides more room in the volatility range for a downward move in the share price going forward.

AAPL – Why Apple shareholders after the earnings selloff shouldn't be too worried

In this article

If you are an Apple shareholder who wondered after last week’s stellar earnings report why the value of your stock holding was going down rather than up, the reason given — that chip shortages will weigh on the short-term outlook — may not seem good enough. For a trader looking at every short-term opportunity to move portfolio money to where the next quick buck is likely to be, it doesn’t take more than that “sell on the news” headline. Longer-term investors, though, might want to consider a recent fact about the company and negative headlines: Apple has overcome pretty much every short-term “sell” headline in recent years on its way to being a $2-trillion-plus company.

Trump’s trade war with China? No problem. The surprise decision to stop offering iPhone unit guidance? Much ado about nothing as the iPhone super-cycle came along anyway. As for the global semiconductor chip shortage now being cited by Apple, it might be wise to keep in mind that Apple has a long history of being pretty conservative with its outlook — formal earnings guidance still has not returned. And one more thing: Tim Cook was elevated to the CEO post after Steve Jobs based on his mastery of global logistics.

“Let’s face it, if Apple has any trouble getting chips, then every other company on the planet will have 10x those problems,” said Nick Colas, co-founder of DataTrek Research. “If you’re really worried about chip supply, you want to own Apple because it is first in line at every chip fab.”

But there is a bigger question relevant to Apple and the rest of the market: Just how strong is the next leg of growth for the market going to be?

People visit the Apple store in the Oculus Mall in Manhattan on July 29, 2021 in New York City. Numerous stores in the mall, including the Apple store, have required guests to start wearing masks again as the Delta variant of Covid spreads through New York City.
Spencer Platt | Getty Images News | Getty Images

The immediate outlook for the market doesn’t necessarily scream buy-on-the-dip after the big tech sell-on-the-news, according to Colas. Seasonality is an immediate risk, with market history showing the early August period to be a volatile one for the VIX volatility index.

“It’s a valid trading question, where to go for the trading dollar in August,” Colas said.

Short-term trading versus longer-term investing

Since 1990, the early August period has been one into which the VIX peaks. Part of the reason is the lighter volumes in the market during the summer. “It’s a trough for liquidity, when people are on vacation … a lower number of people trading and more volatility any news item will carry. I am telling clients to be careful,” he said.

On Wednesday through Friday of last week, the S&P 500 trading volume was below its 30-day average.

For the short-term trader, a rotation away from the large-cap leaders into small-cap represented by the Russell 2000, which Colas described as being “way oversold” since its torrid hot streak in early 2021, could make sense. “Small-caps went parabolic through March and April and have not worked since because they got so far ahead,” he said.

That makes them, at least statistically, based on 100-day trailing returns, cheap right now.

But for investors not playing the market for a quick trade, Colas says the post-earnings disappointing trades from Apple, Facebook and Microsoft shouldn’t weigh too heavily. Amazon was the outlier in actually missing revenue expectations rather than posting a big beat, making a selloff on the news a “fair” reaction, according to Colas.

Big tech stocks were really bid up into Q2 reports

It’s also important to remember that the big beats from the rest of big tech were already embedded in most of the stocks as they had a strong June and July based on the market guessing right — that Q2 earnings would be stellar. “The market was bidding up the names into the quarter. The market sniffed out the surprise and they all occurred, and when you see stocks all rally into a quarterly earnings, it’s just hard to sustain that. That is ‘sell on the news’ unless there is a tremendous amount of good news and guidance,” Colas said. “That’s normal capital markets behavior.”

He goes back to one important data point in assessing the strength of these companies: they have doubled their earnings power in the past two years. “Which is astounding,” he said. And that gives him more comfort in the longer-term picture. “I don’t see any change. Big tech is still the place to be.”

He cited two reasons.

Even as these companies have doubled earnings growth, he doesn’t think they are anywhere near peak earnings. “It’s just a much higher base to build on.”

Second, these companies have definitive advantages in industries and don’t directly compete against each other in a zero-sum game i many areas of strength.

These companies have grown earnings so much because the pandemic changed consumption patterns, made us all even more tech-centric, and the market made a lot of money betting on that playing out exactly as it did. But now the big question for big tech isn’t about its dominance being threatened — though multiple antitrust battles loom — it is just figuring out how much more room they have to keep the earnings growth rate going higher.

“Tell me what you would pay for a company with a 30% return on investment and structural growth of 10% to 15%, and can do it for a decade? What is the multiple? Is it 30 times or 40 times? I have no idea,” Colas said, “but I know it’s not 20 times.”

Post peak-pandemic growth and peak earnings

Apple was an example from this group of concerns about price-to-earnings multiples. It lagged the rest of the tech giants for years, seen as a hardware vendor and weighed down by that market view until the services business soared through the pandemic and the $2 trillion market cap was given to the company. And again this year, it was “the one oddball laggard,” in Colas’s words, as its year-to-date return into earnings was roughly 10% versus roughly 30% for Facebook and Microsoft.

Apple trailed the S&P 500, too, ahead of the earnings. One reason: it sucked so much demand forward investors are rightly concerned posting good earnings comps will get harder. But, Colas said, that might also mean it has the most room left to go up, even in the short-term as a new iPhone launches in the fall and back-to-school boosts spending on consumer tech.

The broader global growth story the entire stock market is tied to isn’t a lock. In fact, amid the panic over inflation earlier this year and expectations that the 10-year Treasury yield would go higher, it did the opposite. “The market totally understood growth had peaked in Q1 and started trending down at the end of the quarter,” Colas said.

The rate story was wrong, but slower economic growth is now higher up on the list of investor concerns for a U.S. market where P/E ratios are high. Big tech represents 23% of S&P 500 and that means whatever the market next decides about its lofty valuations will weigh on U.S. stocks overall.

No big tech company is near peak earnings on an absolute basis.
Nick Colas, co-founder DataTrek Research

But investors don’t have that many great choices globally. With the situation in China between the government and its leading companies resulting in massive losses in recent weeks, there might be trading opportunities, but emerging markets are no place to be for anything but a trade. And even if there is potential opportunity in other international plays like European financials, it is going to take time for rates to move in a direction that benefits those stocks.

“What’s left? It’s U.S. and the top of the cap table,” Colas said. “That’s what you need to own. Still back to the same names.”

Looking at sector weightings back to the 1970s and through the 1990s, he says there has never been a time when five companies had more weighting. “It’s just 5 names, and it’s not like when Exxon was at its peak in the S&P. That was a commodity play. These companies have huge barriers to entry and very high structural returns.”

Even with those advantages, trying to figure out what their earnings power will be post-pandemic, or at least as the world transitions from the worst of the pandemic to the lingering effects, is the bigger issue for big tech.

“What is a fair growth rate for 2022? That is hard,” Colas said.

For Alphabet — the only among the big tech names to report last week which rose after its earnings — and for Facebook, which reiterated a prior warning of slowing revenue growth, there is the cyclical nature of advertising market to rely on, and that has not changed all that much in recent decades. Apple, though, is a harder one, because even as it has made progress moving past the iPhone story and building its services business into a huge driver of growth, so much hardware demand was pulled forward.

For Amazon, Colas noted that e-commerce’s share of demand when from 17% to 24% in Q2 2020, and then back down to 20%. And every percentage point in that band has huge leverage over Amazon’s business model — in fact, he pointed to it as a reason why Amazon had been “stuck in that band” for nine months before it rallied into earnings. From October 2020 to June of this year Amazon had bounced around but didn’t get bid up like the other names until the pre-earnings run. Year-to-date after its earnings fall, the stock is barely holding onto a gain, just under 3%.

What just occurred in all of these stocks was a peaking into earnings, but it’s nowhere near peak earnings for these companies, Colas said. The concept of peak earnings, which has been a concern for investors, implies there is a point in the cycle when a company shows its highest earnings growth in absolute terms. “That’s what peak earnings are about, and no big tech company is near peak earnings on an absolute basis,” Colas said. “Because they continue to grow and their amount of earnings leverage is massive.”

That is more likely to be a buy on the future after the sell on the news has worn off.

AAPL – Apple's new debt deal could mean more shareholder rewards after blowout earnings

Apple Inc. hit the market on Thursday, with a four-part bond deal, with an eye to keeping its mega program to return capital to shareholders flowing, after the iPhone maker earlier this week reported blockbuster earnings.

The Cupertino, Calif. company expects to sell the bonds, which mature in seven, 10, 30 and 40 years on Thursday, with proceeds earmarked for general corporate purposes, including to repurchase stock and to pay of dividends, the company said in a public filing.

Apple’s shortest class of seven-year bonds had an initial target spread of about 60 basis points over Treasurys BX:TMUBMUSD10Y, while its longest 40-year class was closer to 115 basis points above the risk free benchmark, according to a person with direct knowledge of the dealings. Bond spreads are the level investors are paid over a risk-free benchmark to compensate for credit risks. Apple did not immediately respond to a request for comment.

“We expect Apple
AAPL,
+0.54%

to use the proceeds for shareholder returns and to a lesser extent debt repayment,” Jordan Chalfin, senior technology analyst at CreditSights, wrote in a Thursday note.

“The company has $72 billion net cash as of the most recent quarter and has a long-standing goal to reach net cash neutral over time.”

Chief Executive Tim Cook on Tuesday said Apple already returned $29 billion to shareholders in the June quarter, during the company’s earnings call. The shareholder rewards were split between $3.8 billion in dividend payments and $17.5 billion in stock repurchases.

During the call, the company also said the board of directors approved a cash dividend of $0.22 per share on Aug. 12.

Thursday’s new debt financing comes after Apple posted fiscal third-quarter net income of $21.74 billion, nearly double from a year ago, and a huge $5 billion surprise revenue beat for its iPhone business.

But like other technology giants reporting results this week, it also projected a growth slowdown in the remainder of 2021.

Netflix
NFLX,
-0.75%
,
Google-parent Alphabet
GOOGL,
-0.30%
,
Twitter
TWTR,
+0.74%

and other technology giants were also this week outlining policies for staff involving a more protracted return to offices or tighter masking requirements, in light of the delta variant that’s led to a rise in COVID-19 cases and hospitalizations.

Read: Silicon Valley is hardening line on returning to work — it’s fully vaccinated or bust

Apple, Microsoft
MSFT,
+0.30%
,
Alphabet, Amazon.com
AMZN,
-1.19%

and Facebook
FB,
-4.11%

dominate the S&P 500 index
SPX,
+0.50%
,
with a combined 23% share of the index as of Friday.

The Dow Jones Industrial Average
DJIA,
+0.53%

and S&P 500 both touched intraday all-time highs Thursday, as the stock market focused on mostly robust quarterly results and put COVID and growth concerns on the back burner.

For its part, Apple reimplemented mask requirements at more than half of its U.S. retail stores for employees and customers, regardless of their vaccination status. It previously pushed back its plans to recall workers to its corporate offices by at least a month, but now also told employees that masks must be worn in its office buildings, even by the vaccinated.

The Centers for Disease Control and Prevention this week also reversed its more liberal masking guidance from May, now recommending that even fully vaccinated people wear masks in areas with “substantial and high transmission” of COVID-19, as well as in K-12 schools.

AAPL – Should you buy Apple shares after blowout Q3 results? This analyst thinks so

Apple Inc (NASDAQ: AAPL) reported another blowout quarter last night, but the stock doesn’t seem to care so far. Shares of the company opened about 1.5% down on Wednesday, leaving investors wondering if it’s the calm before the surge?

Peter Najarian’s comments on CNBC’s “Halftime Report”

According to MarketRebellion.com co-founder Peter Najarian, now would be the time for investors to add to their long positions in AAPL or hop onto the stock because the fundamentals are in Apple’s favour. On CNBC’s “Halftime Report”, he said:


Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

“The growth we are seeing in Apple isn’t the kind of growth that you normally see in these ‘very mature’ companies. A mega-cap technology company that is still posting about 36% of growth in revenue, that’s extraordinary. How about the fact that their margins are strong in all categories?”

Najarian acknowledged that the multiple is a bit stretched but was confident that it was more than offset by the exceptional growth. The stock, he added, should have rallied, but it moved south, making up for a perfect opportunity to buy more shares.

Kourtney Gibson raises her price target on Apple

During the same interview on CNBC, Kourtney Gibson of Loop Capital Markets echoed the same as she disclosed having raised her price target on Apple after the earnings report.

“I think Apple will again see tremendous growth in the September quarter. You talk about the super cycle with the new iPhone 13 coming out, you talk about 5g, you talk about wearables – we could keep going down the list. Apple has put so many irons in the fire to help move the company forward.”

Apple’s profit nearly doubled in its latest reported quarter as it topped estimates for iPhone sales by more than $5.0 billion. At the time of writing, the $2.41 trillion company has a price to earnings ratio of 28.28.

Invest in crypto, stocks, ETFs & more in minutes with our preferred broker,

eToro






10/10

67% of retail CFD accounts lose money

AAPL – Apple Rides High-End IPhone Sales, Subscription Gains To Q3 Earnings Beat

Apple topped Wall Street forecasts for its fiscal third quarter thanks to strong sales of high-end, 5G iPhones and strong gains in subscription bundles.

For the period ending June 30, the tech giant reported revenue of $81.4 billion, up 36%, with earnings per diluted share of $1.30. Both numbers were significantly better than analysts’ expectations of $73.3 billion in revenue and earnings of $1.01, according to Refinitiv.

Like other tech players, Apple has been coping with worldwide chip shortages, and CEO Tim Cook had warned investors to expect a slowdown in iPhone sales in the third quarter. Despite that splash of cold water, sales of iPhones reached $39.6 billion in the period.

Reaction to the better-than-anticipated numbers didn’t budge the company’s stock in after-hours trading.

“This quarter, our teams built on a period of unmatched innovation by sharing powerful new products with our users, at a time when using technology to connect people everywhere has never been more important,” Cook said in the company’s earnings release.

Watch on Deadline

Apple has recently created a number of bundles, enabling consumers to group together subscriptions to streaming, data, music and other services. Subscriptions in the quarter totaled 700 million, up from 660 million in the previous quarter. The company has never broken out any numbers for individual services like Apple TV+, which launched in November 2019.

Some Wall Street voices have expressed concern about a pending verdict in a lawsuit filed by Fortnite maker Epic Games. A negative ruling could put a squeeze on the so-called “Apple tax,” i.e. the share of sales the company takes on transactions occurring in its App Store. On the other side of the ledger, in the second part of 2021, is the 13th iteration of the iPhone. Reports have indicated better-than-expected guidance from the company to its suppliers, which suggests strong results down the line.

AAPL – Apple Reports Earnings Tuesday. Why the Market Is Already Looking to What's Next.

Apple is set to report earnings on Tuesday.


Sascha Steinbach/Getty Images for Apple


Apple

shares recently surged to new all-time highs, amid heightened investor anticipation of June-quarter earnings, due after the closing bell on Tuesday. But it’s the launch of the next generation of iPhones, expected to be unveiled in September, that might be the real difference-maker.

Apple’s recent rally has not erased concerns about the stock. Growing regulatory scrutiny of Big Tech generally and Apple (ticker: AAPL) in particular, with a specific focus on the fees Apple charges developers who distribute applications on the company’s App Store for iPhones, iPads, and Macs, is the obvious one. There are also worries about tough year-over-year comparisons, and some investors fear that the recently robust growth in Mac and iPads sales will slow as the economy returns to more normal conditions. Others are nervous that the next set of iPhones will provide only incremental improvements, and that demand could disappoint.

But no one seems to be too worried about the earning themselves. The Wall Street consensus for the fiscal third quarter is for $72.9 billion in revenue and profits of $1 a share. Even analysts who are cautious about the stock think those numbers are too low. For instance, BofA Global Research analyst
Wamsi Mohan
is projecting revenue of $77 billion, with profits of $1.05 a share, driven by strength across the company’s hardware portfolio. Mohan still has a Neutral rating and $160 price target on the stock, however, and cautions that the company faces tough comparisons in the quarters ahead given spikes in Mac and iPad sales during the pandemic.

He’s got a point. In the March quarter, Apple’s sales surged 54%, driven by strong growth across the portfolio, with sales increases of 66% for iPhone, 70% for Macs, 79% for iPads, 25% for wearables, and 27% for Services. Street consensus estimates for the June quarter call for $34.2 billion in iPhone sales, $7.2 billion for iPads, $7.9 billion for Macs, $7.8 billion for wearables, home, and accessories, and $16.3 billion for services.

The company did not provide detailed guidance for the quarter, but cautioned that sales could be reduced by as much as $4 billion due to a tight supply of Macs and iPads tied to component shortages. 

Still, Wedbush analyst Dan Ives thinks Apple is headed for another across-the-board beat, driven by continued strong demand for iPhone 12, with particularly strong demand in China. “While the chip shortage was an overhang for Apple during the quarter, we believe the iPhone and Services strength in the quarter neutralized any short-term weakness that the Street was anticipating three months ago,” Ives writes. The analyst says Apple remains his favorite large-cap tech pick, with a “1-2 punch” of services and iPhone demand. He thinks the company can reach the $3 trillion market capitalization level in 2022, from just under $2.5 trillion now. Ives keeps his Outperform rating and $185 target price.

Canaccord analyst T. Michael Walkley also reupped his Buy rating on Apple shares, while boosting his target price to $175, from $165. He likewise expects June quarter results to beat Street estimates. One interesting question is whether Apple will return to providing quarterly guidance, a practice the company suspended during the pandemic. If they do, Walkley says, expect the forecast to outstrip current Street projections.

“Apple is well-positioned to continue to benefit from the 5G upgrade cycle, and we anticipate strong overall growth trends as 5G smartphones ramp and its installed base expands with higher-margins services revenue,” he writes. “Apple’s ecosystem approach, including an installed base that exceeds 1.65 billion devices globally and now over 1 billion iPhone users, should continue to generate strong services revenue.”

But the big news might still be yet to come. Once the company navigates past earnings, Apple investors will zero in on the fall iPhone launch. (Let’s call it iPhone 13, although Apple hasn’t specifically named the new line.) Ives sees incremental improvements, including Lidar capability in all phones, which will improve their utility for augmented reality applications. More important is his observation that about 250 million of the installed base of nearly 1 billion iPhones are at least 3.5 years old and due for an upgrade.

As Morgan Stanley’s Katy Huberty has noted, Apple shares tend to outperform the market heading into the launch of new phones. There’s no reason to think this year will be any different. Expect a strong June quarter from Apple, with higher highs likely as we approach the fall.

We can reassess after that.

Write to Eric J. Savitz at eric.savitz@barrons.com

AAPL – AAPL Expectations Are Once Again High After Tech Giant Wowed Investors In Last Two Quarters

An old phrase on Wall Street goes, “The trend is your friend.” If that’s true, analysts are mostly counting on Apple (NASDAQ: AAPL) delivering another quarter of double-digit earnings growth when the Technology giant reports fiscal Q3 results next week.

For those keeping score, AAPL has wowed analysts with solid double-digit results the last two quarters and three of the last four. In its fiscal Q2 alone, AAPL handily beat Wall Street’s expectations with a $23.6 billion profit on revenues that surged 54% to $89.6 billion. iPhone revenue in fiscal Q2 surged 65.5% to $47.94 billion, beating estimates on Wall Street by about $6 billion.

That’s got some analysts predicting a record-setting year in which net profit could eclipse $70 billion, nearly a third higher than last year’s, according to some estimates.

Granted, going into fiscal Q2 earnings back in April, Wall Street had little question AAPL would surpass the somewhat muted year-ago results when COVID-19 in China had hurt supply and demand. APPL then reported a whopping $1.40 per share in earnings in the most recent quarter, compared with this quarter’s consensus of $1 per share. Talk about setting the bar high.

FIGURE 1: COMEBACK KID. After a really bumpy start to the year that included a 20% correction from its peak, shares of Apple (AAPL—candlestick) have had a burst of energy over the last two months and now are nearly even with the S&P 500 Index (SPX—purple line) year-to-date. Data sources: Nasdaq, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Feeling The Love

“We feel very good, given the results we’ve had in the first half of our fiscal year,” finance chief Luca Maestri told the Wall Street Journal after Q2 results were reported. “And clearly as economies start to reopen, particularly those economies where there are enough vaccines, obviously we think that should be a positive.”

Does he still feel the same even as new strains of the COVID virus appear to be making their way across the world? Most analysts think yes, citing the love club that swooped up tons of AAPL products in recent months, and the widely held belief that a hybrid work model—where some work at home part of the time— could further juice product sales.

By Maestri’s thinking a quarter ago, a hybrid work environment also could boost sales of AppleCare, an extended warranty service it offers, and advertising, both of which were hit by the pandemic. Then there’s the services segment, which looks to be a game-changing new path for AAPL, ringing up revenues that jumped 27% to $16.9 billion in fiscal Q2, a good 10% above the Street consensus. Paid subscriptions to services including Apple TV, Apple Music, and the latest Apple Fitness+ hit 660 million in the last quarter, owing to tiered pricing and expansions of Apple Arcade and others.

And clearly, analysts said, the company felt comfortable enough with future forecasts to hike its cash dividend by 7% to a lofty $0.22 a share while also upping the share repurchase by another $90 billion.

Yep, that’s a B, as in billion, and AAPL is leading the pack in corporate buybacks, which JPMorgan Chase (NYSE: JPM) estimated this week could hit $1 trillion as the economic recovery takes hold. But that’s another story for another day.

After starts and stops through much of the year, AAPL shares started to gain momentum in June, hitting a record high of $150 this month, though the last few days have been bumpy. In June, JPM’s Samik Chatterjee told clients he saw “a very attractive set-up for the shares in the second half of this year,” according to his note.

He cited “relatively low investor expectations” when AAPL is expected to roll out the iPhone 13 this fall “with a multiyear 5G tailwind to the replacement rate and a larger installed base supporting stronger run-rate of annual volumes relative to current investor expectations.” That could be something investors might want to chew on.

The Supply Constraint Question

AAPL, which again didn’t offer a forecast for the quarter last time out, did note that supply constraints on chips and other major components for iPhones, Macs, and iPads could eat into top-line dollars by as much as $4 billion. Still, gross margins were forecast at 41.5% to 42.5%.

Canalys, the Tech market analyst firm, tracked only a 1% gain in smartphone shipments over the most recent quarter.  What’s worse, Chinese smartphone maker Xiaomi bumped AAPL out of its traditional second-place post in market share. By Canalys’s calculations, Samsung (KRX: 005930) held a 19% share of the market, Xiaomi moved up with a 17% share while AAPL held 14%.

Wall Street consensus is for a steep sequential drop in fiscal Q3 iPhone sales, with the average estimate at $33.9 billion, according to Barron’s. The Q2 total was around $48 billion.

But as one analyst notes, it doesn’t tell the whole story of the 5G upgrade. Remember that record-breaking $65.6 billion worth of iPhones AAPL sold in fiscal Q1? Though AAPL was late to the 5G party, there are reports it could step up its iPhone lineup this fall. More on that later.

Wall Street’s High Hopes

UBS analyst David Vogt, for example, conceded supply constraints might put a dent in revenues, but still pushed his forecast higher on his belief of robust demand for both iPhone and Macs. He’s looking for $74.7 billion in revenues, up from his earlier forecast of $71.3 billion. By his calculations, that will lead to $1.01 a share, higher than the $0.95 he had previously.

Morgan Stanley’s Katy Huberty is in line with Vogt’s revenue predictions, but she’s edging up profits to $1.02 a share. “We see the combination of mature replacement cycles, increasing 5G adoption, improving retail store traffic, longer battery life and camera quality, and share gains against Huawei as drivers of iPhone outperformance,” she wrote in a note to clients.

Brian White, an analyst at Monness Crespi Hardt upped the ante in a big way: He’s projecting revenues of $80.33 billion, a 35% year-over-year surge that could pump profits to $1.16 per share. That’s still a sequential decline, but most analysts are expecting one.

The biggest drivers in White’s reckoning are iPhone sales at $39.1 billion compared with the Street consensus of $33.9 billion; $9.6 billion for Macs, blowing away the Street’s $7.8 billion; and $17.2 billion for services, a cool $1 billion more than what’s on the Street.

And All The Other Stuff

AAPL investors have long known the rumor mill of new products, services and any other little thing AAPL might be looking into has run rampant. And why not? This is a very cash-rich company that allows it to look at and even do a lot of things in order to better deploy its cash for the good of shareholders.

AAPL ended the March quarter with a jaw-dropping $204 billion in cash and investments. Of that, $38.5 billion was in cold-hard cash and the rest was in short-term and long-term marketable securities, much of which are held in U.S. Treasuries. Investors might remember that yields on cash and securities aren’t exactly great now, with 10-year Treasury notes at roughly 1.3%.

But here’s a smattering of reports that investors might want to know more about as they think about future prospects for the tech behemoth:

  • Nikkei Asia reported this week that all iPhones released next year will be 5G-ready, including AAPL’s first upgrade of its budget handset, a phone that is said to still account for more than half its revenue. It also will not introduce an improved version of the iPhone Mini next year, disappointed by sales of the premium smartphone with a smaller scale.
  • AAPL is said to be working on a pay-later service, a riff on extending credit that grew in popularity during the pandemic, according to Bloomberg. Consumers who use Apple Pay to make purchases might be allowed to do it in timely installments, creating competition for the likes of Affirm (NASDAQ: AFRM) and Klarna. The Apple Pay Later service, using Goldman Sachs (NYSE: GS) as the lender, could call for four interest-free payments every two weeks or across several months with interest, Bloomberg reported.
  • The success of such Apple TV+ original content productions as “Ted Lasso” and “The Morning Show” has been as tempting as Eve’s fruit. Still a small fish in a growing pond of streaming video players, AAPL wants to “fin” its way into bigger waters, and the Wall Street Journal said it’s looking for a large production base in Los Angeles. The search is said to be on for a 500,000 square-foot studio that would complement, rather than replace, current soundstages, the paper reported. What’s more, the WSJ also reported AAPL could be among the suitors for Reese Witherspoon’s Hello Sunshine production company, should one of the stars of “The Morning Show” decide to sell it.

Looks like there’s plenty for investors to chew on here.

Apple Earnings And Options Activity

AAPL is expected to report adjusted EPS of $1 per share, vs. earnings of $0.64 per share in the prior-year quarter, according to third-party consensus analyst estimates. Revenue is projected at $72.93 billion—up 22% from a year ago.

Options traders are pricing in about a 3.7% stock move in either direction around the upcoming earnings release around the coming earnings release. Implied volatility is at the 22nd percentile as of Friday morning.

Looking at the July 30 weekly expiration, activity in put options has been spread out, but with some concentration at the 145 and 140 strikes. Calls have been most active at the 150 strike.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

Image by SCY from Pixabay

© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

AAPL – Why Apple Stock Was Falling Monday

What happened

Apple (NASDAQ:AAPL) is joining in Monday’s stock market sell-off. As investors respond to broader pessimism about the global rebound in new coronavirus cases, the tech giant’s share price fell by a little more than 3% in early trading — and that slide largely persisted throughout the session. As of 2:15 p.m. EDT, Apple stock remained down by 2.8%.

Sir Isaac Newton reference -- an apple falling and hitting a cartoon character on the head

Image source: Getty Images.

So what

The pandemic is one problem for Apple. Stock market analysts are another.

In twin notes Monday morning previewing the upcoming earnings release for Apple’s fiscal third quarter, analysts at Deutsche Bank said they see “strong momentum across all of its businesses,” and expect Apple to beat consensus estimates. That said, the analysts admitted that Apple is dealing with component shortages for its Macs and iPads that could dent results. In a note covered by TheFly.com, Deutsche seemed to hold out the most hope that 5G iPhone sales could save the quarter.

At the same time, however, analysts at investment bank Bernstein suggested that any beat by Apple might be only “modest” in size. Bernstein is hoping that Apple will keep market enthusiasm going by commenting on its fourth-quarter expectations, but warned that the company is more likely to give investors only vague guidelines rather than numerical guidance for the period.

Now what

So what should investors be looking for when Apple releases its Q3 numbers on July 28? On the one hand, both the top and bottom lines are expected to grow, with sales forecast to rise 22% year over year to $72.9 billion, and earnings up perhaps as much as 56% to $1 per share.    

On the other hand, with investors already anticipating such strong growth numbers, it could be hard for Apple to exceed expectations. Hopefully, even a modest beat will be enough to keep investors happy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.