Still Technology: All About Apple and Oracle Next Week – Expectations Are High for Apple

Last week, the continued upward drift in Technology estimates was written about (here), and now this coming week we get Apple’s iPhone 8 announcement / update on Tuesday, and the Oracle’s fiscal Q1 ’18 earnings release on Thursday, September 14th, 2017 after the close,

No question Apple will be the bigger of the two in terms of news:

  • Apple is 3.99% of the SPY’s market cap as of September 8th, 2017.
  • Apple was 3.5% of the SP 500 in terms of “earnings weight” in fiscal Q3 ’17 earnings and 3.1% as of fiscal Q2 ’17. (Thanks David Aurelio of Thomson Reuters.)
  • Apple’s market cap as of the close of trading, September 8th, 2017 was $815 billion – the largest component by market cap in the SP 500.

The problem is – for the Apple iPhone 8 launch – expectations are now pretty high.

I do remember last year, with the last iteration of the iPhone 7, expectations were very low coming into the launch and it was only after the first weekend of sales that the stock took off. At this time last year Apple was trading between $100 – $110 per share.

It would actually be nice to see the stock get knocked down a little bit although this past Thursday’s news about possible production delays saw the stock sell off a whopping $0.50 on the news.

Here is what caught my eye though: a blog post from mid-August, 2016, is here:

FC – Apple816166blog post

Note how the fiscal 2018 estimates as of mid-August, 2016 were $10.07 in EPS and $241 billion in revenue.

Today, the 2018 consensus estimates are for $10.86 in EPS and $261.6 billion in revenue for an increase of 8% in EPS and 8.5% in revenue.

The problem is the stock is up 50% since mid-September ’16.

The pattern and relationship between the trend in revenue estimates and EPS estimates for fiscal ’18 is that the Street is looking for tighter margins. Revenue growth is exceeding EPS and that’s a margin issue.

Seriously, I’m looking for reasons to sell Apple or reduce it in client portfolio’s, but for now, the estimate revisions continue to tell a positive story for the stock.

Oracle broke out to an all-time high with the June ’17 earnings release and after reporting fiscal Q4 ’17 earnings. It is one of the few, late 1990’s “growth babies” that has made a new all-time-high, along with Microsoft.

Look for the earnings preview on Seeking Alpha.

Thomson Reuters data (by the numbers). Source: This Week in Earnings, September 8th, 2017) 

  • Fwd 4-qtr estimate: $138.06 down from last week’s $138.18
  • P.E ratio: 17.8(x)
  • PEG ratio: 1.84(x)
  • SP 500 earnings yield: 5.61%
  • Year-over-year growth of the forward estimate: +9.69%, the third straight week of a lower print.

The growth rate of the forward estimate still can’t crack 10% – merits watching for now.

Maybe Apple can take it over the hump.

Remember, Technology is the largest single sector weight in the SP 500 at 23%. Outside of Energy, Technology earnings growth in Q2 ’17 was 18%, the fastest rate of earnings growth of the 11 SP 500 sectors, and Energy was lapping weak compares.

The weak dollar should help too. About half of the Technology’s revenue is outside the US.

The numbers support the Technology sector’s performance this year.

(Long Microsoft, Apple and Oracle.)

Thanks for reading.

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