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Apple reports its most boring quarter of the year

by Inside Out

Apple Inc. will report its most boring quarter of the year Tuesday, but there is still at least a little bit of drama.

Spring is typically the least exciting period for Apple AAPL, -2.55%, since many people who would be interested in buying an iPhones have either gotten one already or are holding out for the new lineup, typically released in late September. The June quarter tends to be Apple’s smallest in terms of revenue and iPhone sales.

There are still a number of reasons to pay attention to what Apple executives say on Tuesday afternoon, after the company reports earnings for its fiscal third quarter. Investors mainly should watch for any commentary or indications about timing and pricing for the next iPhone release.

“FQ3…results are likely to mean little to investors barring a significant surprise to iPhone units, gross margins, or services trajectory,” Bernstein analyst Toni Sacconaghi wrote. “Investor focus has shifted to iPhone demand in FY19 with the next-generation iPhones.”

Apple’s quarterly outlook for the coming period will be a key indicator of Apple’s expectations for the next iPhone. There’s a tendency to parse that forecast for hints about what the company plans to do with its next batch of phones. A higher-than-expected outlook might give investors the sense that Apple plans to make its new phones available for purchase at some point in September, meaning they’d factor into fiscal fourth-quarter sales. In the current upgrade cycle, the iPhone X didn’t come out until November, and it was in short supply early on.

When thinking about Apple’s forecast, however, Sacconaghi cautions against overexcitement.

“We note that historically, revenue guidance for FY Q4 has *not* been a helpful predictor of the strength of the forthcoming cycle, and FY Q4 gross margin guidance has only been helpful when Apple has guided meaningfully lower,” wrote Sacconaghi, who rates Apple’s stock at market perform with a $190 price target.

Beyond Apple’s outlook, general commentary could also shed light on management’s thinking going into the next iPhone cycle. Analysts often ask executives to talk about high iPhone prices, so watch for any nuggets there.

“The question is how far will they go to offer something that’s not as expensive, with a little less functionality,” DA Davidson analyst Tom Forte told MarketWatch last month.

What to expect

Earnings: Analysts surveyed by FactSet expect Apple to report earnings per share of $2.16, up from $1.67 a year earlier. According to Estimize, which crowdsources projections from hedge funds, academics, and others, the average estimate is $2.23.

Apple has beaten earnings expectations in every quarter but one since March 2013.

Revenue: Apple’s management has forecast revenue of $51.5 billion to $53.5 billion for the June quarter, compared with $45.4 billion a year earlier. The FactSet consensus calls for $52.3 billion in quarterly revenue, while the Estimize consensus is for $52.8 billion.

Analysts surveyed by FactSet expect that Apple sold 42 million iPhones in the quarter and generated $29.1 billion in iPhone revenue.

Stock movement: Apple shares have fallen following five of the company’s last 10 earnings reports. The stock is up 27% over the past 12 months, while the Dow Jones Industrial Average DJIA, -1.43% , which counts Apple as a component, has gained 15%.

Of the 41 analysts tracked by FactSet who cover Apple’s stock, 25 have buy ratings and 16 have hold ratings. The average price target is $201.79, 4.4% above recent levels.

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