Apple’s shares have been in the doldrums after moving up to a new plateau since mid-February after its December quarter results were announced in January (see chart below). During the past five months the shares have hit an intra-day high of $134.54 on April 28 but have been fairly range bound between $122 and $135. Even Apple’s strong March quarter results, an increased dividend and $50 billion added to its share repurchase program have not been enough to nudge the stock higher. (Note that I own Apple shares).
Since Apple’s shares hit a double low in April and June of 2013 at about $56 the stock has experienced five consolidation phases prior to earnings being announced and subsequently moved higher. Three of the five consolidations were about two months long while the current one has gone on for almost five months. It does appear investors are waiting to see if strong iPhones sales can continue and get an initial read on Watch results before the shares can move higher (both from June quarter results and September quarter guidance).
As I wrote about in late May Apple’s shares have had a double top and need to break out to meaningfully move higher. If the shares can’t do this after the June quarter results doubt about the next new iPhone will creep in unless the Watch performs much better than expected.
Valuations have gotten lower
Valuations have moved a bit lower as EPS estimates have increased which should support the stock from moving much lower. When Apple’s shares hit their all-time high of $134.54 on April 28 the Street was projecting the company to generate EPS of about $8.93 in fiscal 2015 or a PE multiple of 15.1x. Based on Monday’s close of $124.53 the stock’s PE multiple has dropped to 13.8x since EPS estimates have inched up to $9.02.
Strong iPhone results are baked into the June quarter expectations
Numerous sell-side analysts are expecting strong iPhone results and I’d peg buy-side forecasts to be in the 52 to 53 million range. Sell-side analysts are projecting revenue of $48.6 billion vs. guidance of $46 to $48 billion with an EPS estimate of $1.76 vs. implied guidance of $1.58 to $1.73.
For Apple to significantly exceed $50 billion in revenue (and UBS analyst Steve Milunovich is already at $53 billion) the iPhone will have to come in much stronger than expected and/or the Watch will probably need to hit at least 4 million units if not 5 million or more (or have much higher ASPs than forecast). The Watch could be helped by channel fill so this result could be doable.
