Apple Stock Earnings Preview
Usually, after a prolonged rally, there will be some sizable pullbacks. But Apple Inc. (NASDAQ:AAPL) stock doesn’t seem to be following this rule.
Even though the Cupertino, California-based tech giant was already one of the largest companies in the world, its share price more than doubled in the past 12 months.
Now earnings season is once again in full swing. Will Apple stock continue its rally in 2020?
Let’s take a look.
Commanding a market capitalization of almost $1.4 trillion, Apple Inc. is currently the largest company trading on U.S. stock exchanges. Unsurprisingly, AAPL is a widely followed ticker. And that means, in every earnings season, the company faces a certain set of expectations.
On January 28 after the closing bell, Apple is scheduled to report the results of its December quarter (the first quarter of its fiscal-year 2020).
Wall Street analysts expect Apple to report $88.4 billion of revenue for the quarter, which would be about a 4.8% increase year-over-year. (Source: “Apple Inc. (AAPL),” Yahoo! Finance, last accessed January 22, 2020 and “Apple Reports First Quarter Results,” Apple Inc., January 29, 2019.)
At the bottom line, they expect the company’s earnings to come in at $4.54 per share, which would mark an 8.6% improvement from the year-ago period.
Now, I would like to point out that one of the things that has helped AAPL stock stay on an uptrend was its ability to outperform Wall Street’s expectations. During the past year, the company beat analysts’ earnings-per-share estimates in all four quarters.
Of course, an earnings beat doesn’t necessarily translate to a surging stock price. And because Apple stock has already shot through the roof, the upcoming earnings report will likely be put under a microscope.
|Apple Inc. Statistics|
|Earnings Per Share Estimate||$4.54|
|Change From Year-Ago Earnings Per Share||8.6%|
|Revenue Estimate||$88.4 Billion|
|Change From Year-Ago Revenue||4.8%|
|Earnings Beaten in Past Four Quarters||4|
The December quarter tends to be the strongest for Apple, and this one was the first full quarter since the company released the “iPhone 11” and the “iPhone 11 Pro” flagship smartphones. So expectations are certainly high.
Apple has already provided a holiday-season update for its services segment, and the numbers are quite impressive.
Between Christmas Eve and New Year’s Eve, customers spent a whopping $1.4 billion at the “App Store.” That was a 16% increase from the year-ago period. (Source: “Apple Rings in New Era of Services Following Landmark year,” Apple Inc., January 8, 2020.)
And just on New Year’s Day 2020, App Store revenue totaled $386.0 million, a 20% increase year-over-year and a new single-day record.
As it stands, the iPhone is still Apple’s biggest revenue contributor, but investors like the fact that the company also has a booming services segment.
The reason is simple: in the tech world, hardware device sales are often one-time events, while services revenue tends to be recurring. For any tech stock to continue getting investor attention in this day and age, it needs recurring business.
The good news is, Apple Inc. is well positioned to keep growing its services business. The company has an active installed base of well over one billion devices.
Moreover, every one of those devices runs Apple’s own operating system. By having complete control over this ecosystem, the company should find plenty of monetizing opportunities down the road.
I’m not saying that a nice December quarter will for sure lead to a soaring Apple stock price. In today’s market, it’s not unusual for a company to report a perfectly good earnings report and still see its stock price tumble.
Earnings season is simply filled with uncertainty, and wild swings can happen after-hours. For companies that report earnings after the closing bell, like Apple, trading often extends to the after-hours period on earnings day.
While no one can predict share-price movements with certainty, Apple offers a sure-fire way for investors to earn a return: dividends.
Apple Inc. Returns Cash to Investors
Back in 2012, Apple reinstated its cash dividend policy, with an initial quarterly rate of $0.37857 per share (split-adjusted).
Since then, management has raised the payout every single year to the current quarterly level of $0.77 per share. That represents a total increase of 103%. (Source: “Dividend History,” Apple Inc., last accessed January 22, 2020.)
Note that the $0.77 per share is a payment that shareholders get no matter where AAPL stock is going.
The payout looks rock-solid, too. In Apple’s fiscal-year 2019, which ended September 28, 2019, the company generated earnings of $11.89 per diluted share. Also during the fiscal year, Apple paid four quarterly dividends totaling $3.00 per share. (Source: “Condensed Consolidated Statements of Operations (Unaudited),” Apple Inc., October 30, 2019.)
Therefore, the company was paying out just over one quarter of its profits in its last fiscal year.
If Apple meets Wall Street’s expectations and earned $4.54 per share in the December 2019 quarter, the amount would again easily cover its $0.77-per-share dividend paid during the quarter.
Meanwhile, Apple has a huge cash position. If you dig into its last earnings report (for fourth-quarter 2019), you’d see that, as of September 28, 2019, the company’s cash, cash equivalents, and marketable securities totaled a staggering $205.9 billion. (Source: Ibid.)
The best part is, Apple has decided to return that cash to investors, and I’m not just talking about dividends; Apple also buys back its shares.
In just the September 2019 quarter, the company spent nearly $18.0 billion repurchasing its stock. (Source: “Apple Reports Fourth Quarter Results,” Apple Inc., October 30, 2019.)
By pursuing a massive share repurchase program, Apple has reduced the number of shares outstanding, allowing each remaining investor to own a larger portion of the company.
Like all stocks, Apple stock will experience ups and downs in the short term.
But with a growing recurring business and a willingness to return capital to shareholders, AAPL stock is one of the top tech stocks worth considering for long-term investors.