Apple Q4 Earnings Preview: Record Run Continues Amid Solid Expectations, iPhone X Momentum

Apple Inc. AAPL investors are in for a treat, given expectations concerning a strong September quarter and the momentum around its tenth anniversary iPhone.

The company is scheduled to release its fiscal fourth-quarter earnings after Thursday's market close.

Fiscal Q4 Expectations

The consensus estimates for the quarter call for earnings of $1.87 per share on revenues of $50.79 billion. In the year-ago quarter, the company reported earnings of $1.50 per share and revenues of $46.85 billion.

The consensus earnings per share estimate hasn't moved much over the past 60 days, although it has gone higher from the $1.18 estimated 90 days ago.

Loup Ventures' Gene Munster said the three key numbers to watch include iPhone unit shipments, estimated at 46 million by the Street; Services growth, forecast at 19 percent; and gross margin, expected to be at 38 percent.

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Meanwhile, Loup Ventures estimates iPhone shipments of 47.3 million, Services growth of 17 percent and gross margin, in line with Street estimate.

Apple's share of the U.S. smartphone market is estimated at 43.9 percent in 2017 compared to Android's 52.8 percent share, according to eMarketer. The firm expects the dominance of Android to continue through 2019.

How Apple Fared In Fiscal Q3

Apple reported fiscal-year third-quarter adjusted earnings per share of $1.67 and revenues of $45.4 billion, both of which were ahead of expectations. The company's cash cow, the iPhone, sold 41.03 million units, also surpassing estimates. IPhone revenues came in at $24.85 billion, or roughly 54 percent of the total sales, with the ASP at $605.65. On a year-over-year basis, iPhone unit shipments grew 2 percent and dollar revenues increased 3 percent.

The performance of the company's Services business stood out, clocking 22 percent year-over-year sales growth to $7.3 billion.

Reacting to the quarterly results, the stock climbed to a then-record closing high of $156.53.

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IPhone Launch Event

On Sept. 12, Apple unveiled the much awaited tenth anniversary iPhone X, along with the iPhone 8 and iPhone 8 Plus.

The iPhone X, with its new design, all-screen display, wireless charging and a rear camera with dual-option image stabilization, was made available for preorder Oct. 27.

The iPhone 8 and iPhone 8 Plus were available beginning Sept. 22.

Apple also released iOS 11, its advanced mobile operating system, during the quarter.

Focus On The Earnings Call

Munster said the focus on the earnings call is likely to be commentary about iPhone X pre-orders (based on nearly a week's data on pre-orders).

"Our bet is that Apple will address the critical iPhone X demand question and direct investors to think about iPhone X demand as similar to iPhone 8," Munster said.

Outlook

For the fiscal first quarter, encompassing the key holiday selling season, analysts estimate earnings per share of $3.77 and revenues of $85.31 billion.

Meanwhile, Loup Ventures estimates December quarter revenues of $81.2 billion, iPhone unit shipments of 76.7 million, Service segment growth of 19 percent and gross margin of 38 percent.

The Street estimates fiscal-year 2018 earnings of $11.17 per share and revenues of $266.91 billion.

Analyst Take On The Stock

Apple shares have been on a tear, riding on the iPhone momentum. Over the past year, shares have risen roughly 49 percent, and in the year-to-date period, they have added 46 percent.

Average analysts' rating for Apple shares is Buy and the average price target is $175.19.

Ratings/Price Targets

• HSBC recently initiated coverage of Apple with a Buy rating and a $193 price target.
• On Sept. 6, Nomura maintained its Buy rating and $185 price target.
• On Sept. 19, Morgan Stanley maintained its Overweight rating and $194 price target.
• Piper Jaffray, on Sept. 22, maintained its Overweight rating and $196 price target.
• On Oct. 13, Barclays maintained its Equal-Weight rating and $161 price target.
• On Oct. 16, KeyBanc Capital Markets upgraded shares to Overweight.