Apple Stock Has a Lot to Prove on Tuesday

By Rick Munarriz Markets Fool.com

Image source: The Motley Fool.

Continue Reading Below

One of the biggest earnings reports this week will be Apple (NASDAQ: AAPL). The world's most valuable consumer tech company will be reporting its fiscal first quarter results after the market close on Tuesday, and it wouldn't be a surprise if the numbers move both Apple stock and the market in general.

Apple stock hit a fresh 52-week high on Thursday, and with the shares trading 36% off their springtime lows, it's easy to see how proving mortal can trigger a sell-off. The silver lining here is that just a sliver of its gains have come in the past three months. Apple shares have risen a mere 3% since its last quarterly report.

Wall Street pros aren't holding out for much. They see $77.38 billion in revenue for the holiday quarter, just 2% more than what Apple scored during the prior year's holiday quarter. Analysts are also forecasting a profit of $3.22 a share, just below the $3.28 Apple delivered a year earlier.

Grate expectations

If a 2% uptick in revenue and a 2% dip in earnings per share seem uninspiring, keep in mind that three months ago we saw revenue and earnings slide 9% and 15%, respectively, during Apple's fiscal fourth quarter. A huge decline in China and a modest slide in the Americas couldn't be overcome by smaller gains in Europe and Japan. Apple's 24% surge in services revenue was the lone bright spot, and no match for selling fewer iPhones, iPads, and Macs.

Continue Reading Below

Bulls will argue that Tuesday's report will feature the first full quarter of availability for the iPhone 7 and Apple Watch Series 2 after their September debuts, but it was also when the iPhone 6s came out a year earlier. The prior year was also the first holiday season of Apple Watch availability.

Unfortunately for Apple, Wall Street's gotten better at forecasting its financial performances. Apple used to routinely blast through analyst profit targets with ease when the iPad was new and the iPhone was all the rage during the early years of the mobile revolution. They're getting closer to the truth these days. Apple hasn't topped Wall Street profit estimates by more than 3% over the past year, and that's with the benefit of aggressive share buybacks propping up profitability on a per-share basis. Apple's outstanding share count has declined in each of the past four years.

Analysts who have chimed in with updates in the days leading up to Tuesday's report have been mixed.Mark Moskowitz at Barclays downgraded Apple from "overweight" to "equal weight," concerned about the upside for all of 2017. He lowered his price target from $119 to $117, below where the stock is at now.Credit Suisse analyst Kulbinder Garcha checked in a day later with a more upbeat take, but his "outperform" rating and $150 price goal is based more on the potential of the hyped-up iPhone 8 that should be released later this year than anything that we will see in Tuesday's report.

One can argue that the scene is set for Apple to shine. Analysts are looking beyond the fiscal first quarter, and the stock hasn't kept up with the market since its last quarterly report. After three quarters of year-over-year revenue declines, even a token increase could give investors a chance to exhale. The continuing growth of services revenue could ultimately get net margins moving in the right direction again. We won't have to wait long to see what Mr. Market thinks. Tuesday afternoon is just around the corner.

10 stocks we like better than Apple
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Apple wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 4, 2017

Rick Munarriz owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.