Article / 23 October 2015 at 10:10 GMT

Earnings Watch: China should support Apple growth

Head of Equity Strategy / Saxo Bank
Denmark
  • Almost a third of the S&P 1200 Global companies are to report next week
  • Apple is due on Tuesday and expectations are high
  • Seeing the growth potential, the US tech giant is undervalued
  • Growth is to come from China - also in the future

By Peter Garnry

With 368 companies reporting earnings in the S&P 1200 Global Index next week the Q3 earnings season will see enters its busiest week. The number is staggering and clearly we cannot cover it fully here. Instead we will go into details on Apple's earnings.

China can lift valuation

Apple reports FY15 Q4 earnings on Tuesday October 27 after US market close. Analysts expect EPS $1.88 up 33% y/y and revenue $51 billion up 21% y/y. EPS estimates are up 3% in the last six months as analysts have revised up there numbers on better than expected performance in China driven by CEO Tim Cook's comments a couple of weeks ago. The share price is up 6% YTD relative to flat performance in S&P 500. 

Apple weekly share price since early 2009
Apple share price

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The current flow of information from the supply chain and retailers do not suggest any slowdown in demand for iPhones which accounted for 63% of revenue in the previous quarter. Focus will be on China that accounted for 27% of revenue in the previous quarter, up from 17% a year ago as the business in China doubled. Tim Cook has recently been out saying that demand is still strong in China and as such this is where growth will come from over the coming years.

Based on expected profits in 2016 of $54.3bn and the current market value excluding cash the stock trades at FY16 forward P/E of 8.4x which is too low given product portfolio, growth rates, operating margins etc. Even with a conservative forward P/E 11x the upside is 31%

Apple is still on our top 20 alpha picks list in the mega cap segment and as such we believe there is an upside potential in the stock over the earnings release.

The most important earnings next week are...

Monday: Luxottica 

Tuesday: Novartis, BP, Canon, Wal-mart de Mexico, Apple, Pfizer, Gilead Sciences, Comcast, Merck, Bristol-Myers, UPS, Ford Motor

Wednesday: National Australia Bank, China Life Insurance, Volkswagen, Linde, GlaxoSmithKline, Lloyds Banking Group, Statoil, Heineken, Telenor, Amgen, Walgreens, Mondelez, Occidental Petroleum

Thursday: ANZ, Banco Bradesco, Suncor Energy, Swiss Re, PetroChina, China Construction Bank, China Petroleum, Bayer, Deutsche Bank, Novo Nordisk, Danske Bank, Banco Santander, Nokia, Sanofi, Total, Barclays, BT Group, Eni, Sony, Panasonic, Royal Dutch Shell, Altria Group, MasterCard, Starbucks, ConocoPhillips, Time Warner Cable

Friday: Anheuser-Busch, Ambev, ICBC, BBVA, BNP Paribas, Airbus Group, RBS, BP Group, NTT DOMOCO, Exxon Mobil, Chevron, CVS Health, AbbVie, Colgate-Palmolive, Phillips 66

All of next week's earnings can be found in the attached PDF.

Download document

Earnings Watch - 2015-10-26

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