AAPL Stock: Can Apple Inc Deliver A Thrilling Performance?

Despite reports to the contrary, Apple Inc (NASDAQ:AAPL) CEO Tim Cook sees a "thrilling" performance by latest Apple products.

AAPL Stock Can Apple Inc Deliver A Thrilling Performance

For the past one year, analysts and Apple Inc (NASDAQ:AAPL) shareholders have been betting on an "iPhone Supercycle". The euphoric sentiment has driven Apple stock more than 30% higher. However, since the launch of the latest iPhones and other products last month at the Steve Jobs theater, the mood has been more somber. Apple stock has slid after the results amid critical reviews before making a partial recovery. The recent critical reviews and the initial reports relating to a lackluster performance of the recently released iPhone 8 and iPhone 8 plus has kept Apple investors on the edge. The latest batch of iPhones have to deliver to sustain Appel's current stock price level.
Apple stock price return comparision with Nasdaq Composite stock chart

However, the initial reports are painting a bit gloomier picture than many were expecting. The initial response, especially in Asia was not that great. Customers were not exactly lining up for hours to pick up their latest iPhone like they use to do before.  According to a survey, 65.1% of prospective iPhone customers intend to buy one of the newly released iPhone models. In comparison, 75.7% of prospective buyers had indicated their preference for the newly announced iPhone 7 or iPhone 7 Plus in September 2016. The story is similar in the United States. According to RBC Capital Markets, 64 percent of prospective iPhone buyers want an iPhone X, 8 Plus or 8. This is lower than 71 percent of prospective buyers who preferred an iPhone 7 or 7 Plus after its release last year.

Initial data suggests lower upgrades.

To add to this, the latest report by AT&T (NYSE:T) is also not encouraging. According to Bernstein analyst Toni Sacconaghi, about 81% of iPhone sales this year had been made to existing iPhone customers, meaning that existing customers will play a key role in determining the success or failure of the recently launched Apple products. As per an analysis done by Bloomberg Gadfly, a small change in the percentage of iPhone customers upgrading to the latest model could impact the sales of millions of iPhones.

scenario analysis of Apple revenue growth and sales given iPhone upgrade

On Wednesday, AT&T said that the number of its mobile subscribers that had swapped out old smartphones for newer models (all brands) fell by 900,000 units from the third quarter of 2016. Considering, the quarter included about a week of U.S. sales for Apple's iPhone 8 models, the disclosure made by At&T is not so encouraging as it suggests a lower number of customers are upgrading to newer models. Of course, it is difficult to form a conclusive judgment based on the number provided by a single carrier.

The less than encouraging reports about the response to iPhone 8 is making several analysts skeptical about Apple's ability to meet its Q4 guidance. Apple's management expects fourth-quarter revenue to be between $49 billion and $52 billion. At the mid-point, the guidance represents 8% year-over-year growth in revenue from last year fourth quarter revenue of $46.9 billion. This is higher than 7% YoY revenue growth Apple reported during the third quarter.
Apple revenue chart

Apple will find it tough to deliver on this guidance if iPhone 8 sales have remained tepid as many news reports and surveys indicate. The third quarter results will include a week of iPhone 8 sales. Earlier, many investors had expressed concerns after Apple had delayed the sale of iPhone X to the month of November. However, Apple clarified that it has not included iPhone X while providing Q4 guidance. Some analysts have reduced their Q4 estimates after the reports of tepid response to the latest iPhone models.

Can Apple Inc deliver a thrilling quarter?

But Apple CEO Tim Cook has exuded confidence about the performance of iPhone 8 series and Apple Watch 3 Series. He said that iPhone 8 had sold out in some stores while the response to Apple Watch Series 3 with LTE was very strong. Tim Cook told CNBC's Josh Lipton "I am thrilled....Here's what we're seeing right now. The watch with LTE — the Series 3 Watch — we are sold out in so many places around the world. And we're working really hard to meet demand. We've sold out of iPhone 8 and 8 Plus in some stores, but we've got good supply there."

However, most of the analysts still remain bullish on Apple stock in the medium term as they expect the higher priced iPhone X to do well, which could more than makeup for the slack in iPhone 8 series sales. Also, as per several surveys, most of the consumer who plan to buy iPhone X prefer the 256 GB version which costs around $1149. This could boost Apple's margins even higher. Guggenheim expects a 17%Y/Y increase in iPhone ASPs to $770. Expectations of higher margins have led to several analysts revising their price target on Apple stock higher, despite the current bearish sentiment. While Apple stock will continue to remain under pressure going into the Q4 earnings, we continue to be bullish on Apple stock in the medium term.

Apple stock is part of our top stock picks from the tech sector, which have beaten the NASDAQ by nearly 155%. Interested in automotive stock? Then, we also have our top picks from the auto sector, which have beaten the S&P 500 by a whopping 285%. If you're a trader though, you should check out our daily trading ideas section for daily, free updates on the latest crossovers and other popular technical signals.

Kumar Abhishek Kumar Abhishek   on Amigobulls :

Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice.

Buying and selling of securities carries the risk of monetary losses.Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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