Apple: Still Earnings Risk

Apple (Nasdaq: AAPL): had a negative pre-announcement for the December quarter ahead of officially reporting. We had been below the Street ahead of that. Our earnings remain below the Street for several quarters.

Apple talked about a pick up in January due to deciding to discount phone prices in China. China and emerging markets had been a reason for weakness.

The rising dollar forced Apple first to raise prices so as not to have a revenue hit. But rising prices hurt demand so in January they benefited from reducing prices.

But look what it does to margins.

  Mar Jun Sept Dec Mar
  Q2 Q3 Q4 Q1 Q2E
Fiscal 2018 2018 2018 2019 2019
Calendar 2018 2018 2018 2018 2019
Gross Margins 23422.0 20421.0 24084.0 32031.0 21375.0
Gross Margins 38.3% 38.3% 38.3% 38.0% 37.5%
bp chg -0.64% -0.17% 0.38% -0.42% -0.81%
2yr% -1.09% 0.31% 0.26% -0.52% -1.45%

We like looking at the 2-year run-rate. That adds up this year's quarter with last year's same quarter. The 2-year gross margin trend drops from -.52% to -1.45% based on their gross margin guidance for the March quarter.

That gross margin hit most likely comes from dropping prices in China to hold share. That gross margin hit hurts our earnings forecast (Join to see full model).

When we run that trend through the rest of the year our EPS end up below the Street estimates.

Here's how our EPS end up versus the Street.

  Mar Jun Sept Dec
  Q2E Q3E Q4E Q1E
Street EPS 2.38 2.10 2.69 4.50
Our Upside -0.05 -0.39 -0.52 0.44

Earnings drive stock prices. If we're right then earnings will not be strong support for the shares.

Disclaimer: Stocks reported by Elazar Advisors, LLC are guided by our daily, weekly and monthly methodologies. We have a daily overlay which changes more frequently which is reported to our premium ...

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