Apple, Inc. (AAPL - Analyst Report) is set to report its third-quarter fiscal 2016 results on Jul 26. Last quarter, it posted a 3.55% negative earnings surprise. The company has outperformed the Zacks Consensus Estimate in three of the last four quarters with an average positive earnings surprise of 1.18%.

Let’s see how things are shaping up prior to the announcement.

Factors to Consider

Since the beginning of this year, Apple has been battling dwindling iPhone demand. Last quarter, the company saw its revenues decline for the first time in 13 years, of course in tune with declining iPhone shipments and lower selling prices.

We expect the to-be-reported quarter to be a weak one for the company, given the persisting sluggishness in key regions like China. Furthermore, Samsung continues to gain traction in the smartphone market, which does not bode well for Apple. Moreover, the recent PC shipments data from IDC and Gartner indicate sluggish demand for Mac devices as well. The company is entangled in a few lawsuits, which will weigh on its financials. For instance, Apple will have to dish out $400 million for the settlement of an antitrust lawsuit with regard to price fixing of e-books.

Nonetheless, some respite is expected from its newer enterprise collaborations like SAP SE (SAP - Analyst Report) and increasing traction in markets like India. Also, some other notable developments in the third quarter are Apple’s changes to its App Store, which also included differential pricing for app developers based on their subscription term. Also, some other growth drivers to watch out for are revenues from the greater Apple ecosystem and its other services like Apple Pay and Apple Music. However, there is no denying that soft demand for iPhone has an impact on its other offerings.

Apple had earlier given a muted outlook for third quarter sales, citing uncertain macroeconomic conditions. The company expects third-quarter revenues in the range of $41 billion to $43 billion.

Earnings Whispers?

Our proven model does not conclusively show that Apple will beat earnings estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Apple has an Earnings ESP of -2.16% as the Most Accurate Estimate is $1.36 while the Zacks Consensus Estimate is pegged higher at $1.39.

Zacks Rank: Apple has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

APPLE INC Price and EPS Surprise

APPLE INC Price and EPS Surprise | APPLE INC Quote

Stock to Consider

Here's a stock worth considering that, as per our model, has the right combination of elements to post an earnings beat this quarter:

Post Holdings Inc. (POST - Snapshot Report) with an Earnings ESP of +12.77% and a Zacks Rank #1.