Options Trade – Apple Inc. (NASDAQ:AAPL) Calls 
Monday, January 26, 2015

**OPTIONS TRADE: Buy the AAPL Apr 2015 120.000 call (AAPL150417C00120000) at or under $3.00, good for the day. Place a protective stop loss at $1.20 and a pre-determined sell at $6.00.

by Ian Harvey

January 26, 2015

Introduction

Apple Inc. (NASDAQ: AAPL), which designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications, will report the results of its first-quarter after the market close on January 27.

Analysts have forecast earnings of $2.54 per share, on revenues of $66.42 billion. During the same period last year the company had earnings of $2.07 per share, and the stock is up 1.0% on the year.

Technical Details

Apple has a one year low of $70.5071 and a one year high of $119.75. The stock’s 50-day moving average is $111.3 and its 200-day moving average is $103.9. The company has a market cap of $621.6 billion and a price-to-earnings ratio of 16.56.

Earnings

Apple last announced its earnings results on Monday, October 20th. The company reported $1.42 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.29 by $0.13. The company had revenue of $42.12 billion for the quarter, compared to the consensus estimate of $39.63 billion.

For the current fiscal year, on average, analysts predict that Apple will post $7.80 earnings per share.

Apple delivered better-than-expected sales and earnings during the last quarter, and Wall Street analysts are noticing vigorous sales trends in recent weeks, so expectations are quite high leading to Apple´s coming release.

Wall Street analysts are on average expecting $67.3 billion in sales, a 17% increase versus $57.6 billion in revenues during the December-ended quarter in 2013. The figure is above Apple´s own guidance, and management is expecting sales in the range of $63.5 billion-$66.5 billion during the period.

Earnings per share are forecast to come in at $2.59, a big year-over-year increase of more than 25%. Importantly, earnings forecasts are on the rise leading to the report. There have been nine upward revisions and no downward adjustments to forecasts in the last month. Pointing in the same direction, the average earnings estimate has risen 4% in the last 90 days.

Rising earnings forecasts are reflecting encouraging signs regarding demand and product availability, which is obviously a big positive for investors in Apple stock.

iPhone Sales Crucial

The new iPhone 6 and iPhone 6 Plus models were only available for sale toward the end of the September-ended quarter but the iPhone brings in more than half of Apple´s sales.

During the previous quarter, Apple reported a year-over-year increase of 16% in iPhone unit sales, reaching 39.27 million devices. Wall Street analysts are generally optimistic regarding demand for Apple's main product, and they expect accelerating growth in the coming release. According to Forbes, the average forecast is 66.5 million iPhone units, representing an increase of 30.4% versus the same quarter in the prior year.

Based on Fortune's panel of Apple analysts, which includes 18 professional and 12 independent analysts, the consensus for iPhone sales in Q1 is 66.5 million, up 30% from the year-ago quarter.

Even more, Fortune's Philip Elmer-DeWitt notes that analyst estimates for holiday iPhone sales has been on the rise as the Apple earnings date approaches.

”On Tuesday, for example, Morgan Stanley's Katy Huberty told clients she now expects iPhone shipments of 67-69 million, well above her model of 62 million -- which remains unchanged, higher only than Gene Munster's 61 million," Elmer-DeWitt said.

The highest estimate in the group comes from independent analyst Kirk Burgess, with an estimate for 71.5 million. But the well-connected KGI Securities' analyst Ming-Chi Kuo, who is not included in Fortune's panel, is also predicting 71.5 million iPhone sales.

Other Positive Factors

• Apple is a cash-flow-generating machine; the company produced more than $50 billion in free cash flows through the year ended in September. Management allocated $45 billion to share buybacks and more than $11 billion to dividends during the year, so cash flow distributions are a major return driver for investors in Apple stock.

• Booming sales in China with increased proportion of iPhone 6 Plus being sold.

• Dominant position of iPhone in Japan becoming even more so.

• Striking breakthrough in Samsung's home turf of South Korea.

• Increased proportion of 64GB and 128GB memory phones will boost ASP's and gross margins.

• The company is undervalued and very cheap.

• Apple is set apart from the competition - an exceptionally lucrative ecosystem.

• Apple CEO Tim Cook is one of the best.

Analysts Opinions

Equities researchers at RBC Capital lifted their target price on shares of Apple (NASDAQ:AAPL) from $120.00 to $123.00 in a research report issued on Friday, 16th January. The firm currently has an “outperform” rating on the stock. RBC Capital’s target price indicates a potential upside of 16.05% from the company’s current price.

The company has been also been the subject of a number of other research reports:-

• 1/16/2015 – Apple had its price target raised by analysts at Societe Generale from $115.00 to $130.00. They now have a “buy” rating on the stock.
• 1/16/2015 – Apple had its price target raised by analysts at RBC Capital from $120.00 to $123.00. They now have an “outperform” rating on the stock.
• 1/15/2015 – Apple was downgraded by analysts at Mizuho from a “buy” rating to a “neutral” rating. They now have a $115.00 price target on the stock, up previously from $109.80. They wrote, “We are downgrading Apple to Neutral from Buy as we think risk-reward is well-balanced at the current level. While F1Q15 results will likely be extremely solid and March guidance could indicate continued momentum, we believe iPhone sales will decelerate more than normal later in the year. Additionally, our checks indicate that Apple Watch sales could be disappointing and other categories are unlikely to offset the slowdown in iPhone sales creating pressure on out-year estimates. With the upside to the stock around $130-140 and downside in the mid-$80s, we think risk-reward is well-balanced.”
• 1/13/2015 – Apple was upgraded by analysts at Credit Suisse from a “neutral” rating to an “outperform” rating. They now have a $130.00 price target on the stock, up previously from $110.00. They wrote, “Upgrade to Outperform, raising estimates. We raise our EPS estimates by 18%/20% to $9.44/$10.06, given a solid and sustainable iPhone volume base, sizeable increase in scope for cash return and EPS momentum. We now see $10 EPS power in CY16, which drives earnings momentum and our upgrade to Outperform and upside to at least $130.”
• 1/12/2015 – Apple was given a new $143.00 price target on by analysts at Cantor Fitzgerald. They now have a “buy” rating on the stock.
• 1/12/2015 – Apple was given a new $150.00 price target on by analysts at JMP Securities. They now have a “buy” rating on the stock.
• 1/6/2015 – Apple had its “overweight” rating reaffirmed by analysts at Piper Jaffray.
• 1/5/2015 – Apple was given a new $150.00 price target on by analysts at Global Equities Research. They now have a “buy” rating on the stock.
• 1/2/2015 – Apple was given a new $135.00 price target on by analysts at BTIG Research. They now have a “buy” rating on the stock.
• 1/2/2015 – Apple had its price target raised by analysts at Argus from $120.00 to $125.00. They now have a “buy” rating on the stock.
• 12/30/2014 – Apple was given a new $103.00 price target on by analysts at BGC Financial. They now have a “hold” rating on the stock.
• 12/23/2014 – Apple was given a new $135.00 price target on by analysts at Piper Jaffray. They now have a “buy” rating on the stock.
• 12/23/2014 – Apple was given a new $130.00 price target on by analysts at Oppenheimer. They now have a “buy” rating on the stock.
• 12/22/2014 – Apple was given a new $130.00 price target on by analysts at Stifel Nicolaus. They now have a “buy” rating on the stock.
• 12/17/2014 – Apple had its “buy” rating reaffirmed by analysts at Goldman Sachs. They now have a $151.00 price target on the stock, up previously from $81.00.
• 12/8/2014 – Apple had its price target raised by analysts at Citigroup Inc. from $120.00 to $135.00. They now have a “buy” rating on the stock.
• 12/3/2014 – Apple had its price target raised by analysts at JMP Securities from $135.00 to $150.00. They now have an “outperform” rating on the stock.
• 12/2/2014 – Apple had its price target raised by analysts at Bank of America to $130.00.
• 12/2/2014 – Apple had its price target raised by analysts at Canaccord Genuity from $120.00 to $135.00. They now have a “buy” rating on the stock.
• 12/1/2014 – Apple had its price target raised by analysts at Barclays from $120.00 to $140.00. They now have an “overweight” rating on the stock.
• 11/25/2014 – Apple had its price target raised by analysts at Stifel Nicolaus from $115.00 to $130.00. They now have a “buy” rating on the stock.
• 11/24/2014 – Apple had its price target raised by analysts at Susquehanna from $120.00 to $135.00. They now have a “positive” rating on the stock.

Two research analysts have rated the stock with a sell rating, eleven have given a hold rating and thirty-five have issued a buy rating to the stock. The company currently has a consensus rating of “Buy” and a consensus target price of $125.50.

Conclusion

Therefore, analysts expect strong year over year earnings growth for Apple during the recent quarter, with expectations of strong iPhone sales during the quarter. The company's iPhone 6 and 6 plus set records at their launch back in September and without doubt, the company will make history with iPhone sales, and it is believed that the number will be strong enough to push shares higher. As usual, the stock is likely to make a big move to the upside and that iPhone sales numbers will keep strength under the stock well into the current year.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the AAPL Apr 2015 120.000 call (AAPL150417C00120000) at or under $3.00, good for the day. Place a protective stop loss at $1.20 and a pre-determined sell at $6.00.



”Success is simple. Do what's right, the right way, at the right time.”


Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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