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Apple (AAPL) stock is setting up for an explosive move after the earnings release tomorrow.
Apple will release earnings on Tuesday after the market close. The consensus estimate is $10.35 for earnings and $37.23 billion for revenues.
There is a big variance between the estimates by analysts for the past quarter and also in projections for the current quarter.
The low estimate for earnings for the past quarter is $9.45 and the high estimate for the past quarter is $12.51; the low estimate for revenues is $34.54 billion and the high estimate is $41.73 billion.
The low estimate for earnings for current quarter is $9.18 and the high estimate is $12.53; the low estimate of revenues for current quarter is $34.18 billion and the high estimate is $44.15 billion.
As usual, the breakdown by iPhones and iPads will drive the price of Apple stock.
The big question overhanging Apple earnings is the extent of the slowdown of iPhone 4S sales ahead of the iPhone 5 launch.
Apple is widely expected to launch iPhone 5 in October. Apple gives no clues, so the analysts are left guessing. This is the reason behind the big variance in estimates. Our channel checks show that iPhone 4S is selling better than what we modeled three months ago.
It is natural for sales of an older product such as iPhone 4S to slow down ahead of the big launch of a successor product, iPhone 5. It makes sense for those who can to wait for the iPhone 5 to hang on until it's out before upgrading or replacing their handset.
There are additional reasons for sales of iPhone 4S to slow down. iPhone 4S does not offer connection to LTE, the latest and fastest networks. In other words, a consumer choosing to buy iPhone 4S today is sacrificing connection data speed compared to the new generation competing phones, such as Nokia (NOK) Lumia 900 which is based on Microsoft (MSFT)Windows Phone operating system or Samsung Galaxy S III which is based on Google (GOOG) Ice Cream Sandwich.
iPhone 4S also looks dated compared to the competition. Its 3.5 inch screen is no match for newer phones with 4.3 inch or 4.8 inch screens.
Bull’s stance on earnings is heads we win, tails we win. If earnings are worse than expected, bulls contend that investors will look past the valley of the slowdown to the iPhone 5 launch and the stock will go up. On the other hand, if earnings are as expected or better than expected bulls will have a legitimate reason to celebrate. If Apple can power ahead with an aging product, there is no stopping Apple and the stock will explode to the upside.
Investors' attitudes toward Apple still show a bit too much optimism. Several of my proprietary indicators also show excessive bullishness and complacency in Apple stock. History teaches us that yesterday’s darlings topped out when the sentiment was extremely bullish and investors were complacent.
The long and the short of the analysis is that Apple is potentially set up for an explosive move.
About Me: I am an engineer and nuclear physicist by background. I founded two Inc. 500 companies, and have been involved in over 50 entrepreneurial ventures. I am the chief investment officer at The Arora Report, which publishes four newsletters to help investors profit from change. Write me: Nigam@TheAroraReport.com. Follow me here and get email notification when I publish a new article.
Full disclosure: Subscribers to The Arora Report are long Apple from $131 and have taken partial profits at $360, $525 and $629. Subscribers to The Arora Report are also long Nokia.
