Low expectations set the stage for Apple as the tech company reports after the bell on Tuesday. Analysts will be watching as the company discloses service margins for the period as well as looking for signs of life in iPhone sales.
Apple in a rare move on Jan. 2 issued a downtrodden pre-announcement with a revenue warning mostly blaming China. At the time, Jefferies said it was the "biggest miss in years." Apple is down nearly 2 percent for the year, missing out on a market comeback that's boosted most technology stocks.
Following the last earnings report, several firms like Bank of America downgraded the stock. Other analysts like Morgan Stanley's Katy Huberty still have an overweight rating noting that, "Following Apple's Dec Q pre-announcement, the most common question we have fielded from investors is what caused reclassified Services revenue growth to decelerate to 18% Y/Y, from an estimated 25% Y/Y in the September quarter...Apple gave little detail in the pre-announcement, and therefore we'd expect the company to address the drivers of Services revenue during the earnings call."
In his earnings preview note to clients J.P. Morgan's Samik Chatterjee said, "We rate Apple shares overweight given our favorable outlook on iPhone and Services revenues relative to investor expectations, catalysts to accelerate revenue growth, and upside risk to our base forecast for +15% earnings CAGR."
However, Bernstein's Toni Sacconaghi, who has a market perform rating and was the No. 1-ranked Apple analyst according to Institutional Investor last year said that, "Beyond guidance, we encourage investors to listen for the following on the earnings call: (1) Commentary on iPhone replacement cycles; (2) China, and whether recent weakness appears due to cyclical, structural, or nationalist factors; (3) iPhone softness in other markets, given our contention that China only appears to account for half of the iPhone's shortfall in Q1; and (4) Services gross margins, which will be disclosed for the first time (we forecast mid-60s %). We don't see the latter as a catalyst for the stock."
Here's what some of the other analysts are watching for: