Apple Stock: Is Apple Inc. (AAPL) Stock A Buy Ahead Of Q1 Earnings?

Copyright: dennizn / 123RF Stock Photo

iPhone Sales: Higher ASPs Will Drive YoY Growth

No Apple earnings report is complete without focusing on the iPhone segment. The iPhone segment contributed 63.4% of Apple’s total revenues in 2016 and it is no surprise that investors will be keenly watching the unit sales and ASP trends in this segment. With a number of mixed reports coming through on the performance of the iPhone 7, the segment performance will offer a more accurate view of the performance of the latest iPhone models. Wall Street consensus expects the company to have sold 78M iPhones during the December quarter, implying a 4% growth in unit sales.

The segment will also benefit from growth in ASP, which was highlighted in recent commentary from UBS analyst Steven Milunovich, cited by AppleInsider. The Consumer Intelligence Research Partners (CIRP) survey found that Plus models represented (1) 42% of total iPhone sales, compared to 26% a year ago. The higher percentage of the Plus models in the overall iPhone mix should drive ASPs closer to $695, as reported by the UBS analyst. This will represent a marginal improvement over the $695 ASP in Q1 2016. We believe that ASPs could easily come in at over $700, considering the higher mix of the plus models and also the incremental $20 pricing tiers of the iPhone 7 Plus models over the year ago iPhone 6S Plus models.

Guidance

In early January 2017, as reported in our earlier post, Nikkei had reported that Apple Inc. (NASDAQ:AAPL) planned to cut production by 10%. With these reports doing the rounds, investors will be keenly watching the management’s Q2 2017 guidance.The current analyst consensus anticipates Q2 2017 revenue of $54.03B (range of $50.71B to $58.21B), implying a 6.9% YoY drop in sales. A meaningful upside to current expectations coupled with a beat on the overall revenue/EPS/iPhone shipments could send Apple stock price significantly higher, following the upcoming earnings call.