Wednesday, May 2, 2018

Apple Earnings Add To Post Fed Tech Stock Demand

Apple earnings reported last night beat the Street and implied EPS guidance that equals the Street estimate for next quarter. Apple's earnings performance adds to a list of mega-cap earnings reports that's leading to investor pent up demand for tech stock buying.

Waiting On The Fed Today

We wrote yesterday that the Fed's meeting today can typically unleash pent up buying demand. After the 2 EDT PM Fed release you typically have a few market swings before the market chooses a direction.  Over history that direction tends to be higher but many traders sit on the sideline until they see the final trend.

Apple Has 27% Stock Price Upside

Our earnings model is now using 2019 estimates instead of 2018 estimates because the report was strong enough. In fact if you look at the 2-year revenue trend the company's guide implies a 2-year revenue acceleration. That shows confidence.

Below you see Apple's revenue growth. The 2-year calculates this year's growth plus last year's growth for an underlying trend. It helps to smooth out one time ups and downs to spot an underlying trend.


Sept Dec Mar Jun

Q4 Q1 Q2A Q3E
Fiscal 2017 2018 2018 2018
Calendar 2017 2017 2018 2018
Co Revs 52579 88293 61137 52500
Growth 12.2% 12.7% 15.6% 15.6%
2 Year Gr 3.2% 16.0% 20.2% 22.8%

You can see that the midpoint of their revenue guide for June implies a 2-year that goes from 3% to 16% to 20% to 22.8%. They are confident. That confidence makes us want to begin using 2019 numbers.

Our Buys need 45% 12 month upside. We have 27% upside for Apple based off of the pre-market price so we're not ready for a Buy rating but the move to 2019 numbers gets us that one step closer.

Suppliers Can Pop

We have not had any buy ratings on mobile related component suppliers because of the potential Apple weakness. Apple said last quarter they were going to take down inventories this quarter. They did not.  Channel inventories were still at 5-7 weeks just as last quarter and their in-house inventories more than doubled.

I'd guess the Apple supplier stocks can pop as many people are caught short on the entire mobile food chain based on the news, pre-announcements, and a "too obvious" trade. That traps shorts that can send the stocks higher.

But based on Apple's high reported inventories last night there's still more pain to come for Apple suppliers so we'd guess a pop will not extend weeks but can hurt the shorts over the next few days.

Tech Wow

Now with Apple, tech has had a great earnings season, much better than the market feared. Look back at Intel, Microsoft, Amazon, Google, Facebook, Netflix and others all with strong results. We'd guess a Fed relief rally can let that cap off that tech stock demand.





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