Apple Earnings Preview: Is the Bad News Bad Enough?

Tech superheavyweight Apple (AAPL) reports earnings after the close today, and as always it's the talk of the town for tech investors.

Here is a quick summary of Wall Street's consensus expectations: (data from Bloomberg and Factset)

Sales: $42.0559B (Apple's guidance was $42 billion)
Earnings $1.386 per share
Gross margin: 37.945% (guidance was 37.750%)
iPhone units: ~40 million

And for next quarter, analysts expect:

Sales: $45.537B
Earnings $1.593 per share
Gross margin: 38.361%

Now, let's take a broader look at overall expectations for Apple.

Right now, 82.7% of analysts rate it a buy.

Let's compare that to other major large-cap tech names:

Facebook (FB): 88.0% rate it a buy
Google (GOOGL): 90%
Salesforce.com (CRM): 91.3%
IBM (IBM): 25.9%
Oracle (ORCL): 56.1%

The average target price on Apple is now $121.91, down from $150+ last November.

And for the full year, analysts now expect revenues of $215 billion, down from nearly $250 billion last fall.

You can see the trend in this chart: (red is 2016 revenue expectations, white is stock price)

So it's safe to say that expectations have come down quite a bit.

And perhaps most tellingly, yesterday, BGC analyst Collin Gillis downgraded the stock to a sell, saying “Our opinion [is] that Apple has peaked under the leadership of CEO Tim Cook.”

That's not as dramatic as the “Fire Tim Cook Era” which marked the last major Apple bottom:

But it's certainly in the same ballpark in terms of line of thinking.

Remember, Apple is very cyclical at this point, and you want to buy when the news stinks.

Therefore, I think the bulls have the edge with Apple here.

Even if Apple misses, the downside may be limited because a decent amount of negativity is being priced in with the stock trading at 11 times earnings with a 2.2% dividend yield. (vs. a 10-year Treasury with a 1.56% yield)

I'll be back after the open with some possible options trades. (Click here for my trade idea)