Apple Analysts Slashing Estimates Is Red Flag for Stock

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Apple Inc. (AAPL) shares have jumped by roughly 14.5% since bottoming on February 9, and are back to the highs before the steep selloff that sent shares sharply lower in late January. While investors are cheering Apple's rise out of the cellar, analysts are hard at work slashing their outlook for the iPhone maker. Analysts have cut their earnings outlook for Apple's fiscal second quarter by nearly 7.5%, and revenue by over 10%. 

The revenue and earnings estimates have all been cut since Apple reported fiscal first-quarter results on February 1, despite the company beating on both the top and bottom lines. Apple reported revenue of $88.29 billion, nearly 1% better than estimates, while earnings of $3.89 per share came in just over 1% higher than estimates of $3.85. (For more, see also: Apple Shares Officially in a Correction.)

Slashing Estimates

Estimates are calling for Apple to have revenue of $61.37 billion in the fiscal second quarter of 2018, down from prior estimates of $69.2 billion on January 4, a decline of just about 11%. Meanwhile, earnings have also been slashed to $2.71 from $2.93, a drop of nearly 8%. This is a steep decline and is likely a reflection of weak iPhone demand that has plagued the stock for months now. 

AAPL Revenue Estimates for Current Quarter Chart

AAPL Revenue Estimates for Current Quarter data by YCharts

Not so Fast to Cut the Full Year

Analysts have also slashed full-year revenue estimates for Apple as well. Revenue is now expected to reach $262.94 billion in 2018, down from estimates $274.37 billion on January 4, a decline of about 4%. But analysts have yet to trim full-year earnings estimates for the company. Those estimates currently stand at $11.55 per share, and are up from $11.48, since the start of the year—a rise of a little less than 1%. 

AAPL Revenue Estimates for Current Fiscal Year Chart

AAPL Revenue Estimates for Current Fiscal Year data by YCharts

With the revenue and earnings estimates being severely lowered for the current quarter, and the revenue outlook being trimmed for the year, one would think that over time earnings estimates are likely to be cut as well. (For more, see also: Apple's 'Other' Sales to Hit $22B in 2019: Analyst.)

Jumping Ship

AAPL Buy Recommendations Chart

AAPL Buy Recommendations data by YCharts

In yet another sign that analysts are turning on Apple, the number of analysts that had buy recommendations for the stock to start the year has fallen to 17 from 22, while the outperform recommendation has declined to 7 from 9. The number of Hold recommendations have climbed to 16 from 9.

For now, analysts are turning negative on Apple, and whether this is the start of more downgrades to come is yet to be seen. But with reports of three new iPhones coming this fall, it won't be long until analysts begin to dream of the next great Apple super cycle all over again.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance. 

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