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Morning Update

Yesterday after the close Apple delivered a rare earnings miss, coming short on both revenue and EPS. This is only the second quarter of the past 39 in which the company missed. Apple reported EPS of $9.32 and revenue of $8.8 billion versus the analyst consensus was for EPS of $10.37 and revenue of $37.2 billion. The earnings miss was due to weakening iPhone sales: Apple sold 26 million iPhone this quarter, up 28% Y/Y but down 26% Q/Q. CEO Tim Cooke said that the company “did not detect any ‘obvious economic issue(s)’ in the US and China.” CFO Peter Oppenheimer said “Our weekly iPhone sales have been impacted by rumors and speculation regarding new products” (Wall Street Journal). Considering Apple’s earning miss is an isolated event, it is unclear whether this is a symptom of a global macroeconomic downturn or simply a shift of iPhone demand from the present to future, yet unreleased models.

Caterpillar reported strong earnings this morning, beating analysts’ expectations and guiding up for the rest of the year. EPS were up 67% to $2.54 while revenue increased 22% to $17.37 billion. Construction Industry sales increased across all global regions, with North America leading the way. Caterpillar’s raised guidance to $9.60 per share comes on the back of improving housing numbers and relative strength out of the home builder’s sector. At current market valuations Caterpillar trades at just 8.9 forwards earnings, representing a great value should Caterpillar be able to continue to insulate itself from a slowing Europe and China.

Today Western Digital will report earnings after the close. The company had a very strong report last quarter, beating analyst’s expectations and saying that disruptions from the Thai floods were finally over. The stock’s weekly options are seeing heavy trading with the most open interest in the33 calls. Despite yesterday’s broad market selloff which sent the S&P 500’s (SPY) Put/Call ratio to 1.779 Western Digital’s remained at 0.797, suggesting traders are optimistic about earnings.

Waste Management will report earnings tomorrow pre-market. The stock yields 4.37% currently, and the company has increased revenues the last four quarters. Investor’s will be looking to see if there is appreciable volume growth, as a lack of it in the past has hurt EPS growth. The company has regularly raised its dividend but only by raising its payout ratio, which is unsustainable over the long term. An increase in revenue and EPS on higher volume will reassure investors that the dividend is safe and will continue to rise.


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