Technology Officially Oversold: Stick with Apple Based on Estimate Revisions

sector_snapshots_120116_42i-1 – A quick snapshot from Bespoke’s regular Thursday Sector update, shows that Technology is officially oversold.

Not a surprise if you’ve been watching the trading action of late.

All the FANG stocks, i.e. Facebook, Amazon, Netflix and Google are down roughly 4% – 5% since the Presidential election on November 8th, while Financial’s have soared 25%, led by the big banks and brokers.

The GrandDaddy of all the Technology stocks, Apple (AAPL) is still showing positive earnings and revenue revisions for fiscal 2017.

Here is the trend in Apple’s consensus fiscal 2017 EPS and revenue estimates since Jan 1 ’16:

  • 12/02/16: $9.04 and $229.8 billion
  • 11/30/16: $9.05 and $229.8 billion
  • 10/31/16: $9.00 and $228.7 billion
  • 7/31/16: $8.90 and $223.4 billion
  • 4/30/16: $9.17 and $227.0 billion
  • 1/31/16: $10.60 and $241.8 billion
  • 12/31/15: $10.69 and $256.7 billion

Readers should note how forward 2017 estimates were cut dramatically after the January ’16 earnings release, but reduced too much before the July ’16, and the release of the latest iPhone in Sept ’16, whereupon the revisions have begun to turn positive again. The actual reception of the iPhone 7 was far better than the expectations coming into the release in September – October.

Both fiscal ’17 EPS and revenue are still well short of where the estimates were for 2017 a year ago, so Apple has some catching up to do, and it may be why Street analysts have turned cautious on the longer-term, secular growth opportunities for Apple.

Both fiscal 2017 and fiscal 2018 consensus revenue estimates for Apple have fallen 10% from December ’15 estimates.

Here is one last stat I found telling: looking at just the December quarter revenue the last 4 years:

  • 12/16: $77.4 bl (est) +2% y/y revenue growth, the first quarter of growth in 4 quarters
  • 12/15: $75.8 bl (actual) +2%
  • 12/14: $74.6 bl (actual) +30%
  • 12/13: $57.5 bl (actual) +5%

Expectations for Apple are still pretty low, or – at the very least – less enthusiastic, than in the past few years.

A lot of Street analysts are making a longer-term call on Apple. With Samsung’s issues, I think the stock might have one decent push to the upside ahead of it.

Just one opinion – clients are long Apple but can change at any time. The plan right now is to hold Apple through the January ’17 earnings reports and evaluate after seeing guidance and results. Typically when we see an Apple iPhone upgrade like the iPhone 7, the cycle lasts two quarters.

Thanks for reading.

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