All Eyes On Apple Inc. (AAPL) Stock

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July 22, 2014 10:25am NASDAQ:QQQ

apple targetDavid Zeiler:  When Apple Inc. (NASDAQ:AAPL) reports its June quarter earnings after the market close Tuesday (tomorrow), the tech giant faces some steep expectations.

After all, one of the big reasons Apple stock is up more than 17% on the year – and an impressive 32% since hitting a 2014 low of $71.40 on Jan. 30 – is the surprising Apple earnings beat in the March quarter.

AAPL stock was hovering just above $94 in mid-day trading today (Monday).

The AAPL earnings beat last time around was driven primarily by unexpectedly strong iPhone sales – which Wall Street loves because Apple derives more than half its revenue and profits from the iPhone.

For the June quarter (Apple’s third quarter), Wall Street will want to see if the iPhone numbers can hold up through another quarter, particularly amid increasing rumors of the iPhone 6, which is expected to have a larger screen that could be nearly indestructible.

According to FactSet, Wall Street is looking for Apple to earn $1.23 a share on revenue of $37.98 billion. AAPL’s top line was $35.3 billion in the same quarter last year.

And the Street expects 35 million to 36 million iPhones sold, which would be a 14% increase year over year but an 18% drop from the previous quarter.

Historically iPhone sales slide as more and more customers opt to wait for the next iteration, but several of the factors that led to higher iPhone sales last quarter could have carried through to the June quarter.

Apple Earnings: How iPhone Sales Could Beat Expectations

For instance, one huge factor last quarter was Apple’s relatively new relationship with telecom giant China Mobile, which has 785 million customers. That deal, which launched in January, coincided with China Mobile’s rollout of its 4G network.

Apple has lost overall market share in China to phones based on Google Inc.’s (Nasdaq: GOOG, GOOGL) Android operating system, but it still dominates the high end of the market. According to research firm Trefis, about 80% of the smartphones in the $500-plus price range sold in China are iPhones.

apple stock.

And now that China Mobile’s 4G network is ramping up, so is the iPhone’s potential. China Mobile’s 4G subscriber base grew from 4.8 million in April to 8.1 million in May.

And China Mobile was only one of 51 new carrier relationships Apple has established over the past year – all of which would have helped feed iPhone sales in the June quarter.

That may be why Morgan Stanley analyst Katy Huberty is projecting sales of 39 million iPhones, which would be a 25% year-over-year increase and enough to push iPhone sales significantly higher than analyst expectations.

It would mean an Apple beat on all three of the numbers analysts are most closely watching – revenue, earnings per share, and total iPhone units sold. And that will get AAPL stock at least to its recent high of about $97.

But while the iPhone matters most to Apple’s earnings, it’s not the only thing analysts will be looking at on Tuesday…

Other Earnings News That Could Help Apple Stock

Piper Jaffray analyst Gene Munster said in a note today that he believes Apple will at least meet expectations for the quarter, adding, “the biggest risk is likely ‘disappointing’ September guidance.”

Even that seems improbable, as it would mean delay of the iPhone 6 launch out of the quarter entirely.

Most AAPL analysts see the June quarter results as having little impact on Apple stock unless something truly dramatic occurs, as most are already looking ahead to the company’s annual product updates released from late August through early November.

This year that means not just the iPhone 6, but an updated iPad, perhaps a few Mac upgrades, and possibly an entry into the wearable tech market, the so-called iWatch.

So even if AAPL earnings disappoint, it should not hurt AAPL stock all that much, since a fresh wave of revenue-generating products is right on the horizon.

One last thing to note about this week’s Apple earnings announcements is that it will be an opportunity for analysts to ask questions about two major developments that took place during the quarter – the $3.1 billion acquisition of Beats Electronics and last week’s deal with International Business Machines Corp. (NYSE: IBM).

While the Beats acquisition was splashier, the agreement with IBM has a better chance of helping Apple stock in the long run. Apple has never put its heart into selling to the enterprise market but in IBM now has a partner that has excelled at just that for decades.

In the years ahead, the IBM deal could translate to tens of millions of added sales of iPhones and iPads, which will plump up profits and help even out Apple’s seasonal, cyclic sales pattern.

Check back with Money Morning Tuesday afternoon after Apple reports for a full analysis.

Money MorningWritten By David Zeiler From Money Morning

We’re in the midst of the greatest investing boom in almost 60  years.  And rest assured – this boom is not about to end anytime soon.  You see, the flattening of the world continues to spawn new markets  worth trillions of dollars new customers that measure in the billions;  an insatiable global demand for basic resources that’s growing   exponentially; and a technological revolution even in the most distant  markets on the planet.  And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact,  we believe this is where the only real fortunes will be made in the  months and years to come.

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