Technology giant Apple (AAPL) increased more than $ 6 earlier this week which helps to lead US markets higher after…
Technology giant Apple (AAPL) increased more than $ 6 earlier this week which helps to lead US markets higher after positive feelings came true during the weekend’s US / China meeting at the G20 summit in Argentina . While investors hope that the last $ 14 plus bounce from the end of November low will lay down for stocks, there are reasons to believe the worst is not yet over.
Source: Yahoo Finance)
It was only a week ago that there was a great concern that if trade negotiations broke down between the US and China, President Trump could add a new round of tariffs that would focus on iPhones, laptops etc. During the weekend, the two countries agreed on a short-term trade break, but most experts do not think anything concrete will come soon. Until an agreement has been reached, there will be a constant risk that, if things get through, President Trump will escalate the situation and follow his latest promises.
Apple shares had tumbled more than 27% from no more than $ 233, worth over $ 1 billion and the biggest US company fearing that iPhone sales did not come in as hoped. While I previously claimed that the situation was not a repeat of what we saw a few years ago, the share at the latest lid was almost to the point where the decline was the same. The only good news is that the recovery makes the company’s repurchase stronger and new investors coming in receive higher returns.
Unfortunately, it does not appear to be better in the short term. After the clock on Monday, Cirrus Logic (CRUS), a supplier that generates a significant portion of its revenue from Apple, quarterly earnings forecast. Management now calls for $ 300 million revenue to $ 340 million, from an initial forecast of $ 360 million to $ 400 million. The first guideline was given only on November 1st and it was a disappointment, as the street was looking for more than $ 419 million.
Apple itself gave a slightly weaker than expected forecast at its latest report, requiring December tax first) quarter revenue of $ 89 billion to $ 93 billion. That forecast would set a new record for Apple, but the street was in high end to enter the report. Since then, the street average has fallen by just over $ 1 billion, but it is likely to be lower. As you can see in the graph below, there are at least one analyst that is quite positive and expects nearly $ 101 billion, along with significant EPS growth.
( All current estimates are shown here.
Take the outlier on both the top and bottom lines down to a more realistic number and throw in more cuts that are likely to come on the Cirrus Logic news, and that would not surprise me if the average of street revenue is close to Apple’s guidance center at the end of this month. Should we get some weak November numbers from those reporting monthly figures, the street will continue on the negativity trajectory.
Apple shares began recovering a bit last week after a company VP talked that iPhone XR was the best seller every day since it was sold. That comment is not good for investors, because XR is much cheaper than its XS counterparts, and XR also went on sale more than a month later, so Apple probably sold millions of XS devices already. I also doubt that there is someone who expects that years or two older iPhone models will sell better than XR as well. Just because XR is the best seller at the moment, it does not mean that it sells enough to meet expectations.
So while Apple shares have bumped some of its latest low, I’m afraid investors will get a chance to buy at a lower level. The US / China news was not the worst scenario over the weekend, but there is no agreement on the spot just yet. The Cirrus Logic warning is also very worrying, and it is likely to lead to more analyst panic and estimate cuts. I would be cautious in the short term, and if Apple is back down to the $ 170 low, we can look back on the situation again then.
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