Apple reports earnings, with markets eyeing impact of US-China trade row

Apple will release its earnings report for its fourth fiscal quarter on Thursday, after the US market close. Besides earnings and
revenues, investors will also scrutinize the guidance by management for any updates on the expected sales of the new iPhone line, as well as to what extent the US-China trade conflict is projected to impact the firm’s supply chain and demand for its products in China.

The world’s largest company by market capitalization is expected to report earnings per share (EPS) of $2.78, according to the consensus projection of thirty-four analysts submitting their forecasts to Thomson Reuters. These estimates range from $2.65 for the most bearish analyst, to $2.90 for the most bullish one. If the actual figure indeed meets the consensus, that would mark an increase of 34.4% from the same quarter last year, when Apple earned $2.07 per share. Of note, is the fact that the company has a track record of beating EPS forecasts, having surpassed them in each of the latest four quarters.

As for revenues, the tech giant is anticipated to have made $61.5 billion during the quarter, which would represent a 17% gain from the corresponding quarter last year. In particular, the numbers pertaining to iPhone sales will probably be scrutinized, as the smartphone accounts for more than half of the corporation’s money in. Although this report will only include 10 days of sales for the iPhone XS and XS Max, and none for the cheaper XR version, investors will look to the conference call with the firm’s leadership after the earnings release for updated guidance on how demand for these new products is expected to fare through the holiday season.

Beyond that, Apple’s revenue and net margins on its services business will be eyed – this being the section that includes iTunes and the App Store. It has grown rapidly in recent quarters, and now makes up the company’s second-largest source of revenue. The “other products” category, which encompasses the Apple Watch, Beats, and Airpods, may also attract some attention in light of its strong performance lately.

Finally, the financial community will look for some color around the proverbial “elephant in the room”, namely whether and to what extent the US-China trade conflict is expected to impact the iPhone maker. For context, the Apple Watch barely avoided finding itself in the list of products affected by the latest US tariffs on China. That said, considering the recent reports that the Trump administration may slap levies on all remaining imports from China soon, the future may not be as fortunate for the company. Not only would such tariffs affect the firm’s supply chain and raise the cost for its products, but to the extent that they also hurt Chinese growth, they may curb demand for Apple goods within China as well. Management guidance on this matter will be crucial.

In terms of the market reaction, strong earnings results combined with upbeat guidance from management could bring the corporation’s stock under renewed buying interest. In such a case, immediate resistance to advances may be found near the $215 zone, which capped several declines in late October. An upside break could open the way for a test of the $224 area, marked by the highs of October 24, before the all-time high of $233.5 comes into view.

On the other hand, a miss in earnings or profound concerns by the executives around the trade situation, could trigger fresh declines in the stock’s price. A first line of support to declines may come at $206, defined by the low of October 29. If the bears pierce below it, buy orders could be found around the round number of $200, with even steeper downside extensions likely aiming for the $196 figure, this being the high of July 26. Lower still, attention would shift to the 200-day simple moving average, currently at $191.8.

Year-to-date, and ahead of the US market open on Wednesday, Apple is trading higher by 26%, safely outperforming all the major US equity indices. The S&P 500 and the Dow Jones are up by a mere 0.4% and 0.6% respectively, while the tech-heavy Nasdaq 100 has gained 6.5% in 2018. Apple is a constituent stock in all three of these indices.