3 Areas To Watch In Apple's Upcoming Earnings Report

Apple Inc. AAPL is scheduled to report its fiscal first quarter results Feb. 1 and expectations are high for the iPhone maker after the stock's nearly 50 percent return over the past year.

The Analyst

Wells Fargo's Aaron Rakers maintains a Market Weight rating on Apple's stock with an unchanged $195 price target.

The Thesis

Apple is likely to earn $3.80 per share on revenue of $86.5 billion, Rakers said in a note. This estimate is in-line with Apple's own guidance of earning $3.59 to $3.83 per share on revenue of $84 to $87 billion and is also in-line with the Street's estimate. Apple is likely to say that it shipped 81.1 million iPhone units (up 4 percent year-over-year but up over 11 percent on like-to-like basis) with a blended average selling price (ASP) of $760.

Beyond the headline numbers, there are three areas of focus investors should be paying attention to, according to Rakers.

1. Investors shouldn't expect a surprise to the upside in terms of iPhone shipments as the current upgrade cycle is seeing "muted upgrade trends" in mature markets, especially in China where the overall smartphone market is seeing "weak" data points.
2. Apple's announcement it will pay $38 billion in taxes related to repatriating offshore capital has many investors thinking what impact this will have on its capital return policy, Rakers said. Apple's management could outline a revised plan which includes a 30 percent dividend increase (versus an 11 percent average increase over the past four years) and an incremental $70 billion to its share repurchase program.
3. Apple is expected to report "strong" growth in its services business and could exceed Wall Street's estimate of $8.6 billion, or 20 percent year-over-year growth.

Price Action

Shares of Apple recently traded around $177.27, up 4.7 percent in the early going of 2018.

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