Apple & Other Tech Stocks To Buy Ahead Of Earnings

A year ago, Apple Inc. (NASDAQ:AAPL) was going through its worst. The protracted trade war had slowed down demand for iPhones in China, hampering sales and compelling CEO Tim Cook to slash guidance. But Apple defied the negatives and added more than $725 billion in value last year.

Its share price has more than doubled over the past 12-month period, and now the company has a market value of almost $1.4 trillion. What’s more, the iPhone maker contributed the maximum to Dow’s total return in 2019. The Dow rose 25.3% in 2019, its best annual gain since 2017. Meanwhile, Apple gained more than 80%.

The surge was primarily driven by increased sales of smartwatches, AirPods wireless earbuds and services like mobile payments and streaming-music subscriptions. Growth in such segments helped Apple offset an almost 14% decline in its iPhone business last year, which accounts for the bulk of its sales. And now that Apple is slated to release first-quarter fiscal 2020 earnings results on Jan 28, after market close, let’s see what’s in store for the iPhone maker.

Apple’s Wearables segment, which includes products such as Apple Watch, Air Pods, and Beats earphones, is likely to have done pretty well in the fiscal first quarter. The segment is projected to post $10.2 billion in revenues, indicating a 40% improvement from the same period a year ago. Wearables revenues had jumped more than 50% on a year-over-year basis in the fiscal fourth quarter.

Bernstein Research, in the meantime, noted that revenues from smartwatches, iPods and other accessories soared 41% to $24.48 billion last year, while sales of wireless earbuds almost doubled to $6 billion. This should certainly get reflected in the first-quarter results.

But some critics may say that products such as AirPods Pro, launched in late October, experienced supply issues and may have impacted the wearables segment’s performance in the fiscal first quarter. However, a combination of new Series 5 Watch along with a $199 Series 3 Watch will certainly boost the top-line numbers. To top it, iPhone sales rose in December 2019 and iPhone 11 is widely expected to have seen strong demand in the last three months of 2019.

And in this respect, we can’t ignore the Services segment. Services has become Apple’s second most important division. After all, more than 450 million customers are buying Apple’s streaming contents, news and warranties. Apple earned a staggering $46 billion from the segment last year, which accounted for 18% of overall sales. In the fiscal first quarter, the segment is expected to have generated $13.1 billion in sales, suggesting a 21% rise from a year ago.

Anxiety over trade-related issues, by the way, affected annual revenues from greater China (Taiwan and Hong Kong), declining to $44 billion last September from $52 billion a year ago. But in the final three months of 2019, since Apple navigated trade tensions well, sales in greater China are expected to total $14.7 billion, calling for an 11% rise from the same period last year. The company is, thus, projected to report total revenue growth of more than 4% in the fiscal first quarter on a year-over-year basis. At the same time, Apple now forecasts earnings growth of more than 8% year over year.

To top it, Apple has an Earnings ESP of +4.08%. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

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Apple Inc. Price and EPS Surprise

Zacks Investment Research

Written By: Zacks Investment Research