Apple stock (AAPL) – Get Report is about to clinch its best month of returns in 2021: up 8% as of the start of the last day of trading. But as June draws to a close, the Apple Maven looks forward and prepares to dissect the most important catalyst in the coming month: earnings season.
As usual, we will cover the earnings event minute-by-minute via live blog. Before then, we will dive into the hot topics of discussion in fiscal third quarter. The Apple Maven will start by looking at consensus expectations and historical share price behavior around earnings day.
Figure 1: Earnings season.
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What Wall Street expects
In fiscal third quarter 2021, Apple will be faced with some uncomfortable comps. The pandemic disrupted the company’s business in certain cases. However, Apple still managed to deliver 11% growth on the back of higher demand for tech devices and digital services.
Despite the double-digit top line growth last year, Wall Street still sees the Cupertino company delivering a whopping 22% increase in sales this time (see table below). If achieved, this would be tied for Apple’s second largest growth rate in many years – last quarter was, by far, the most impressive.
Apple chose not to offer full guidance for fiscal third quarter again, due to the COVID-related disruptions. But CFO Luca Maestri offered his high-level expectations that help to support analysts’ estimates further below:
- Strong double-digit growth in revenues, but the seasonal decline from March should be steeper than usual due to supply chain issues;
- Gross margin of 41.5% to 42.5%;
- Operating expenses of $11.1 billion to $11.3 billion;
- Tax rate of 14.5%.
Figure 2: AAPL Earnings/revenue estimate details.
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Apple stock around earnings
History does not always repeat, but it rhymes sometimes – so it may help to look at average price action around earnings day. The following chart presents three bars: the median two-week return of Apple stock (1) before earnings, (2) after earnings, and (3) on any given day.
In the last 20 earnings seasons, Apple share price has surprisingly increased less than average in the two weeks prior to earnings day: 1.1% vs. 1.9%. The range has been wide, however: gains of as high as 10% two quarters ago and losses of as low as -6%.
In the two weeks after earnings, AAPL has risen much more: a median gain of 4.6%. This seems to be at odds with the traditional “buy the rumor, sell the news” dynamic. Maybe Apple investors tend to be more skeptical of results before earnings season, but feel more comfortable committing capital to the stock after the fact.
Worth noting, however, the range of outcomes has been very wide in after-earnings share price action: two-week gains of as high as 20%, and losses of nearly -14%. Volatility and uncertainty, therefore, seem to be the norm in AAPL after the company’s filing of quarterly results.
Figure 3: Median 2-week returns, earnings vs. non-earnings.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)
