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Apple earnings: Record iPhone sales expected

Another quarter, another blowout expected for Apple earnings.

The tech giant is scheduled to report its first quarter earnings after the closing bell on Tuesday. And as of Monday, analysts were expecting the company to report earnings of $2.60 per share on revenue of $67.69 billion, according to a Thomson Reuters survey of 40 analysts. Those numbers account for a 26 percent and 18 percent increase year over year, respectively.

That's higher than Apple's own guidance, which was $63.5 billion to $66.5 billion for the quarter.

"Our expectation is, that not only are they going to have a strong quarter, but we think the guidance will prove encouraging, too," R.W. Baird senior analyst Will Power said Monday on CNBC's "Squawk Box."

Sales of the iPhone, which make up the bulk of Apple's revenue, are expected to be huge. While the focus will be on iPhones, there may also be strong upside potential to average selling price and gross margins that could drive shares higher, said Power, who has a $129 price target for the stock.

In midafternoon trading Monday, Apple's share price was $113.65.

Read MoreChina buying more iPhones than US

And with strong China growth, plus new products in the pipeline this year, some investors are betting the stock has even more momentum in 2015.

Growth in China

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Apple is expected to announce this week that for the first time it has sold more iPhones in China than in the U.S. last year.

UBS estimated that China accounted for 36 percent of shipments in the most recent quarter versus 24 percent of shipments for the U.S.

And there's still plenty of room for it to run, Power said.

Read More Three Chinese tech companies to watch this year

"Apple's market share in China is still in the single digits," he said. "There is a big opportunity (in China). There is a big middle class in China, that continues to be an enormous opportunity."

Last year, greater China accounted for about $29.85 billion of Apple's sales revenue, which was a 17 percent increase from the previous year, when the region accounted for $25.42 billion in revenue, according to data from FactSet. And this kind of growth doesn't show immediate signs of stopping, analysts said.

"The appetite for Apple's new iPhones has been unprecedented with Apple struggling to keep up with demand, while there was a supply imbalance across mainland China for most of the quarter," Cantor Fitzgerald's Brian White said in a recent note to clients. (White has a $143 price target for Apple's stock with a "buy" rating.)

The Apple Watch, which is expected to launch early this year, as well as adoption of Apple Pay, may also help the stock beyond this quarter, Power said.

Read More Apple Watch battery life as short as 2.5 hours, report says

"While we are bullish on Apple Watch, that won't contribute but to a couple percent of revenue over the next couple of years. But I think it is critical to the stock in terms of sentiment and innovation," Power said. "And likewise, with Apple Pay, in terms of the economics, it's still somewhat de minimis, but I think speaks to the innovation and their ability to differentiate."

Despite hopes for growth, there are still a few things investors should be paying attention to.

Headwinds

Apple price action the day after reporting earnings

Period
Beat/Miss EPS
Price Action Day After
Q4 '14 Beat 2.70%
Q3 '14 Beat 2.60%
Q2 '14 Beat 8.20%
Q1 '14 Beat -8.00%
Q4 '13 Beat -2.50%
Q3 '13 Beat 5.10%
Q2 '13 Beat -0.20%
Q1 '13 Beat -12.40%
Source: Factset

One headwind is how the surging dollar could impact Apple's earnings.

Read More Will the surging dollar punish big tech earnings?

Looking ahead, the dollar's strength could curtail gross-margin expansion in the company's March quarter, RBC Capital Markets' Amit Daryanani said in a recent note to clients.

However, Daryanani—who has a $123 price target for the stock with an "outperform" rating—said investors will likely not penalize the stock going forward if margins fall below expectations, as long as sales surprise on the upside.

And even though this quarter is expected to be huge, that doesn't necessarily translate to immediate good news for share prices, since Apple stock as a history of falling after blowout earnings are reported.

"With investor expectation heated up for record results from the company, we mention that the last December quarter (reported Jan 27, 2014) produced record results — and the stock declined by 8 percent. The December quarter two years ago (reported January 2013) also produced record results — and the stock declined by over 12 percent," BGC Capital Partners technology analyst Colin Gillis said in a note to clients on Monday.

Gillis, who has a $103 price target for the stock with a "hold" rating, estimates that the company will sell 66.5 million units at an average selling price of $685, which accounts for 67.1 percent of revenue. But he said that Apple needs to ship some 70 million plus iPhones to "meaningfully accelerate the stock upward."

Investors are also concerned about slowing iPad sales, which have been weak for the past several quarters. In the company's fourth quarter it saw iPad sales drop 13 percent year over year, a trend that is likely to continue.

Read More The ugly number in Apple's earnings

Power is forecasting 22 million iPad sales for the quarter, but that is still down double digits year over year.

"It remains to be seen whether or not they can reinvigorate that growth to get on a positive growth curve through the year," Power said.

Big cash buyback coming?

Another thing investors will be listening for is whether the company announces a big increase in its capital return program.

Three years ago the company promised to return $45 billion to shareholders by 2015. Apple in fact increased that target—first to $100 billion and then to $130 billion—each following year as its cash hoard grew.

While some investors are hopeful the company might announce another increase during the earnings conference call, it's more likely Apple will wait until its usual April timeframe to make any updates to the program, Power said. But it's likely an increase is coming, he said.

"We might be getting ahead of ourselves a little bit, but look, this is a company that generates $50 billion a year in free cash flow, so at a minimum they have to find a way to spend that and of course they have another $150 billion plus sitting on the balance sheet so there's no question there is a lot of capacity there," Power said.

"There is little question that we will see an update and higher numbers there going forward."