Apple, Inc. AAPL is set to report its second-quarter fiscal 2016 results on Apr 25. Last quarter, it posted a 1.23% positive earnings surprise. The company has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive earnings surprise of 3.67%.

Factors to Consider

Since the beginning of this year, Apple has been concerned about sluggish iPhone sales. In the first quarter, Apple barely managed to register growth in its iPhone sales.

As far as the market is concerned, some firms (like Canaccord Genuity) swear by the fact that Apple still holds the premium spot in the smartphone market, while on the other hand there are others(like TrendForce) who believe that lately Apple has lost market share to peers like Samsung and Lenovo LNVGY.

We expect the to-be-reported quarter to be a modest one for the company as demand for its iPhone 6S devices will likely remain sluggish and that for the newly launched iPhone SE will hardly be reflected this time around. As Apple derives a major chunk of its revenues from iPhone (66.3% in fiscal 2015) the concerns remain. But an important thing to consider in this aspect is that even in the difficult macroeconomic scenario, the average selling price of the iPhone improved remarkably per last quarter’s statistics. In our opinion, it is a significant positive and can give a decent boost to the company’s sales.

Meanwhile, we expect some respite in the form of Apple’s enterprise offerings that it is developing in collaboration with IBM Corp. IBM. This could be an important growth driver as enterprise offerings generally have higher margins compared with consumer products. Also, some other growth drivers to watch out for are revenues from the greater Apple ecosystem and services it offers (like Apple Pay and Apple Music).

Last quarter, Apple itself had given a muted outlook for the second quarter citing headwinds in China and Hong Kong. Setting low estimates does leave quite a bit of scope for a beat.

Earnings Whispers?

Our proven model does not conclusively show that Apple will beat earnings estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Apple has an Earnings ESP of -1.52% as the Most Accurate Estimate is $1.94 while the Zacks Consensus Estimate is pegged higher at $1.97.

Zacks Rank: Apple has a Zacks Rank #3, which when combined with a negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

A company that according to our model has the right combination of elements to post an earnings beat this quarter is

Silicon Motion Technology Corp. SIMO with Earnings ESP of +7.27% and a Zacks Rank #1

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