3 Reasons It’s Not Too Late To Be Bullish On Apple

(Photo Credit:  FHKE)

Apple (AAPL) stunned the world again with its second quarter earnings report. The sale of 61.2 million iPhones carried Apple above and beyond the expectations of Wall Street and investors alike. Here are 3 reasons to believe that shares of the world’s most valuable company can continue going higher.

1. Post earnings drift

We know statistically that when a company beats the Estimize EPS consensus, on average shares go higher over the next three days of trading compared to the broader market (SPY). Even though Apple is off to a slow start Tuesday trading down 1.2%, more often than not we expect an earnings beat like this to act as a positive catalyst over a 3 day period.

Apple not only topped the Wall Street consensus, it also topped the Estimize forecast by 6 cents per share, a hearty 2.6% beat. Before Apple’s report we wrote about how we expected a positive pre-earnings drift due to the differential between estimates from Wall Street and Estimize. Now that Apple has outdone the Estimize consensus, we expect shares to drift higher into the closing bell on Thursday. 

2. Expectations for next quarter may not be fully priced in

The ChartIQ Visual Earnings platform has a tool called Price Horizon which lets users map future price targets based on current earnings estimates. Price Horizon applies a one-year trailing price to earnings ratio or price to sales ratio and extrapolates a price target based on consensus estimates.

If we apply Apple’s average price to earnings (P/E) ratio from the past year to estimates for next quarter, we arrive at a price target of $142.73. That’s 8.9% above the current price of $131.06.

Furthermore, a quick glance at Apple’s guidance for the upcoming quarter suggests that estimates need to rise. In the past 2 quarters which have swelled due to the release of the iPhone 6, Apple has beaten its revenue guidance by $9.6 billion and $4.5 billion sequentially. One day after Apple’s Q2 earnings report Q3 estimates remain less than $1 billion above Apple’s newly issued guidance. 

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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