With Apple’ s quarterly earnings announcement fast approaching, Morgan Stanley says there’s a smart way to trade the tech giant’s shares. Using data going back 10 years, the bank found how well the stock performs against the S & P 500 based on different outcomes from the March quarter report. Morgan Stanley found that the tech giant’s shares have historically outperformed in the day, week and month if Apple reported better-than-expected earnings for the quarter and raised its guidance for the June-ending period. Specifically, the bank noted that shares outperformed the market by 5% the following day and week. The stock also beat the S & P 500 by 3% one month out. When the company misses expectations and lowers its guidance, though, the stock struggles. In this scenario, Apple lags the market by 6% the day after reporting and by 7% one week out. For the month after, shares underperformed by 4%. If Apple beats estimates for the prior quarter but guides flat to down for the June quarter, shares typically remain flat. “History would show that a March quarter beat and June quarter guide down doesn’t necessarily drive a negative post-earning stock reaction, as investors look past the trough of the cycle to the upcoming iPhone launch,” analyst Erik Woodring wrote in a research note on Monday. Woodring expects “largely in-line” results for the prior quarter when Apple announces its earnings on May 4. He added that while he sees potential downsides for June quarter revenue estimates, gross margins have upside risk. “Our conversations with clients suggests a guide down is well-known and expected, and therefore in the event Apple can point to upside vs. June quarter Consensus gross and operating margins, the guide-down might not be a negative catalyst,” said Woodring. Morgan Stanley remains overweight on Apple shares and has a $180 price target, which implies shares gaining almost 9% from where they closed Monday. The firm is optimistic that the highly anticipated release of its virtual reality headset in June and reacceleration of growth in its Services segment in the June quarter are positive catalysts. An easing foreign exchange environment and an uptick in iPhone shipments and revenue growth for the 2024 fiscal year are further reasons to remain upbeat on shares, Woodring said. “It’s these 4 catalysts — plus the potential launch of a hardware subscription program — that keep us Overweight-rated (with Apple also our Top Pick), and we’d be buyers of any post-earnings weakness in the event shares underperform after reporting earnings,” according to the analyst. — CNBC’s Michael Bloom contributed to this report.
