Apple Q1 2021 Earnings Preview: iPhone Sales Key To Sustaining 75% Stock Rally

• Reports Q1, 2021 results on Wednesday, Jan. 27, after the market close
• Revenue Expectation: $102.54 billion
• EPS Expectation: $1.39

When Apple (NASDAQ:AAPL) reports its fiscal 2021 first quarter earnings later today, investors will be looking for evidence that sales of the company’s newer iPhone models are picking up after a considerable slowdown during the pandemic.

When the Cupertino, California-based company reported earnings for its previous quarter in October, it gave no forecast for the key holiday quarter that ends in December, citing uncertainty caused by the COVID-19 pandemic. 

However, Chief Executive Officer Tim Cook said the new iPhone 12 line has been well received. Sales of Macs and services also reached all-time highs in the fiscal fourth quarter.

Wednesday’s earnings report will mark the first full season since Apple released its new lineup of iPhones and subscription services bundles. Investors are betting the new phone with 5G cellular connectivity will be the catalyst for a massive surge in sales, potentially reaching the previous record of 231 million units in fiscal 2015. 

Helped by this optimism, Apple shares surged about 3% on Monday to $139.07, hitting another record high. They gained again yesterday to close at $143.16. The stock has risen 75% during the past 12 months.

Apple Weekly Chart.

Since the COVID breakout, Apple has shown that it is well positioned to weather the pandemic-triggered recession, helped by its services business, wearable products and its stock buyback program.

A Record December Quarter 

As Apple unit sales peaked in recent years, the company shifted its strategy to introduce more expensive iPhone models while also bolstering its services business, such as video and fitness apps, for use on the more than 900 million iPhones worldwide.

Its services unit, which had more than doubled in fiscal 2019 compared with five years earlier, produced 16% growth in the most recent quarter. It’s expected to show another strong performance during this stay-at-home period.

In a note last week, Morgan Stanley analysts said they expect a record December quarter, helped by Apple’s most successful product launch in the last five years:

“Our recent conversations suggest investors expect Apple to release solid, but not great, December quarter results. We disagree and believe that Apple is likely to report all-time record quarterly revenue and earnings.”

The bank's analysts raised their price target to $152 from $144. 

Along with strong momentum in the company’s services business, investors are also hopeful that Apple is still driving innovation along with new ways to use technology hardware and software in order to fuel sales once the pandemic is contained.

Still, it would be wise for investors not to ignore potential risks that could hinder Apple’s near-term growth, especially when the global economy remains in a recession and the pandemic continues to rage. Keep an eye on whether users are hanging on to their phones longer or remain keen to upgrade even when the economic environment is harsh. 

Bottom Line

There's a good chance the company's Q1 2021 earnings report will exceed expectations due to robust sales of its newer phone models and the improving performance of its services business. If that happens, it will clearly strengthen the argument that Apple’s strong global brand, cash position and its push to diversify its revenue stream make it a great stock to own for the long-term.