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The Bar is Low For Apple Ahead of Earnings

Apple, Inc. is trading down by more than a third from its all time highs of around $230 reached back in October 2018. With the company set to report earnings next Tuesday, the good news is that the market likely already accounts for any negative price action and the bar is set low for Apple.

Beginning in October, Apple stock has fallen hard, largely on a broad market correction and trade war headwinds. In addition, the company received a number of Downgrades based on data from its largest suppliers in the pre-holiday selloff, adding to the three-month selloff.

More recently, the stock took a hit in early January when the company released updated and disappointing guidance for upcoming revenue figures. The company cited a number of reasons for the updated guidance, including decelerated global growth, a strong U.S. dollar impacting overseas sales, and a product line release date differentiating from the norm.

While revenue was previously anticipated in the $89 to $93 billion range the company released updated guidance slashing that figure by around 8 percent to $84 billion. The stock tumbling by around 15 percent that day, and have recovered slightly since then.

The positive talking points that Apple mentioned that same day fell largely on deaf ears. These include a thriving services segment, substantial growth in wearables, and the anticipation of record-setting earnings per share.

“Wearables grew by almost 50 percent year-over-year, as Apple Watch and AirPods were wildly popular among holiday shoppers; launches of MacBook Air and Mac mini powered the Mac to year-over-year revenue growth and the launch of the new iPad Pro drove iPad to year-over-year double-digit revenue growth,” reads the letter from Tim Cook. “(…)Finally, we also expect to report a new all-time record for Apple’s earnings per share.”

Morgan Stanley Says Buy

Morgan Stanley published a note this week, in which they recommending buying the stock before earnings.

“We believe the recent pullback is an attractive entry point given upcoming services launches and shares already pricing in extremely cautious iPhone replacement cycle and average selling price headwinds,” wrote analyst Katy Huberty in a note published Friday.

According to the analyst, all eyes will be on Apple’s guidance for the current quarter, rather than numbers related to the first quarter of 2019.

“March quarter guidance will provide a base for forecasts during the remainder of the year… Apple likely needs to deliver a better than feared revenue outlook for shares to recover further in the very near-term,” said Huberty.

While further negative price action is unlikely, it’s been proven that the broad markets live or die on FAANG stocks. Any hard-hitting negative news from Apple on Tuesday could keep the major indices down for the week. Conversely, an upset or some positive second quarter guidance from Apple could keep the market rally alive, sending the DJIA well past the 25,000 mark. 

At the time of writing, shares of Apple stocks were trading up 2.8 percent for the say at $156.90.