A year ago Apple had a weak holiday season, sending the shares sharply lower. Now, a year on, the shares have more than doubled over the past 12 months and Wednesday morning, Sydney time, the company releases its latest December quarter figures which are expected to tell a very different story – and one investors are hoping fully justifies the price surge of the past year.
In fact, this week is the first of the peak weeks for the current earnings season with over 100 S&P 500 companies due to report. Besides Apple tech giants Microsoft, Tesla Facebook and Amazon are also due to report, along with energy majors Chevron and Exxon Mobil and giant plane maker, Boeing.
Tesla’s report will be vital given its record-breaking share price performance in recent weeks while Boeing’s quarterly report mid-week is expected to be ugly and value-destroying.
If Boeing takes an axe to spending and staff numbers it could very well puncture the current boomlet on Wall Street (which is now being pressured by the coronavirus.
By Friday’s close this week, the health of the December reporting period will be clear.
But before then the impact of the earnings reports is likely to be overtaken by the fallout from the worsening coronavirus crisis in China. That is now the biggest concern of markets and investors globally.
Last week saw the December quarter report from Netflix was much better than the nervous nellie analysts with extra strong growth internationally (more than 100 million subscribers) than in the US which was expected.
Comcast’s news on Friday of the loss of 133,000 video subscribers made analysts sit up and take notice and send Netflix shares up 4% for the week.
Apple’s services business will be the big story (as we pointed out earlier this month). New services like streaming video, music plus the potential for the 2020 iPhone upgrades later this year, when 5G phones are expected to hit the market, have helped drive the share price higher even as the company has reported mixed sales for iPhones.
The first-quarter report will be the first to include the Apple TV+ streaming service, and higher sales of as well as AirPods earphones and associated services and products. Watch sales are also expected to rise.
Apple shares have climbed 111% over the past 12 months, as the Dow of which Apple is a component, has gained 19%. In other words if Apple shares had underperformed, the Dow would have gone backwards.
Warren Buffett and his Berkshire Hathaway company have been major beneficiaries of the surge in the Apple share price. Berkshire is the largest non- institutional shareholder in Apple
Analysts surveyed by FactSet are predicting quarterly sales of $US88.45 billion in December-quarter revenue, which would be the company’s highest quarterly total on record, surpassing its $US88.29 billion haul from December 2017.
The company had been expected to crack the $US90 billion quarterly sales mark a year ago before its disclosures about emerging-market weakness sent the shares down by around $US300 billion in value at one stage.
Now it’s time for Apple to justify its lofty valuation, which tops $US1.4 trillion.
Reporters over the rest of this week in the US include Apple, Amazon, Microsoft, Facebook, 3M, Merck, Bristol-Myers, Boeing, Lockheed- Martin, Conoco Phillips, Visa. UPS, Mastercard, Dow Chemicals, Dupont, Tesla, Qualcomm, Nucor, US Steel, McDonald’s, Mondelez, Verizon, Pfizer and AT&T.
In Australia small manufacturer and water group, GUD is due to report its December half-year figures on Friday.
Boeing’s quarterly figures will be watched closely not only for the outlook for 2020 but also the fate of the troubled 737 Max program and deteriorating balance sheet.
Some analysts are expecting an “absolute disaster” for the quarter. Analysts surveyed by FactSet expect sales of $US21.7 billion for Boeing, down from $US28.3 billion a year ago.
That will mean weak operating profits, before any further write-downs associated with the 737 Max and the decision to cut production.
The 737 Max jets have been grounded worldwide since March after two deadly crashes months apart were connected to a malfunctioning anti-stall system.
On average, analysts expect Boeing to report per-share earnings down more than 60%-90% from the December 2018 quarter.
Boeing largely has kept quiet about its outlook for the year, and its problems don’t end with the 737 Max.
Adjusted profit is seen at 35 cents a share, which would compare with $US5.48 a share a year earlier.
In addition to Boeing’s decision on the future of the plane, the other projects, such as new long-range twin-aisle jet, and cuts to investment spending, plus its debt projections will also dominate analyst thinking.
The quarterly figures from electric car and battery maker, Tesla will be closely watched when released after the close on Wednesday (early Thursday morning, Sydney time).
The company will have to convince investors that its fundamentals justify the string of record highs the stock has hit since mid-December with its market value topping $US100 million for the first time.
Investors want assurance that demand for its cars remains intact, production is smooth, and margins improving, all the while making sure its new factories (such as in China) won’t take an outsized bite of its balance sheet.
Investors will also zero in on Tesla’s 2020 car sales outlook.
