Earnings season continues this week, with a fresh new batch of companies reporting their long-awaited quarterly results. This week, we have a few big tech names such as Apple AAPL and Microsoft MSFT on deck.
It’s been a rough stretch year-to-date for most tech stocks, with many widely-regarded companies witnessing their share price decline quite extensively. Soaring energy prices, supply-chain bottlenecks, higher borrowing rates, and high labor costs have weighed heavily on investors’ sentiment throughout the quarter.
The chart below illustrates the year-to-date performance of four major tech stocks – Apple AAPL, Microsoft MSFT, Meta Platforms FB, and Amazon AMZN – while comparing the S&P 500’s performance as well. As we can see, Apple is the only stock on the list that has managed to outperform the S&P 500 throughout 2022, while MSFT, FB, and AMZN have underperformed quite noticeably.
Image Source: Zacks Investment Research
In fact, Apple shares have been displaying stellar strength both year-to-date and over the past year. In the chart below, we can see just how much stronger shares of AAPL have been over the last year compared to the same group as before. It seems that Apple is a technology stock that provides a very valuable level of defense.
Image Source: Zacks Investment Research
Clearly, Apple has displayed a vast amount of relative strength compared to other tech stocks, which bodes well for its financial health. The company is slated to release its Q2 earnings report on Thursday after the bell rings, so it’s time to take a magnified view of its key metrics and what analysts are looking for in Apple’s Q2.
Recent Earnings Reactions
Apple has beat quarterly EPS estimates for years now, with its last EPS miss coming back in 2016 Q2. Additionally, shares have moved upward just two times in the previous six EPS beats; the two positive share price reactions happened in its last two quarterly reports when shares moved upwards 0.6% and 6.7%, respectively.
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Looking at what fueled the nearly 7% upwards move back in 2022 Q1, we can see that Apple reported an all-time revenue record of almost $124 billion, driven by robust demand for the release of its most innovative lineup of products and services ever. Given that Apple generally releases the newest model of its flagship iPhone in September, it makes sense that the company’s shares benefitted during this quarter. Additionally, it’s worth noting that the semiconductor shortage has impacted Apple throughout the current quarter.
Growth Drivers
Heading into Q2, two key metrics that investors should keep a close eye on include iPhone and Mac revenue. The iPhone is Apple’s flagship product, and Mac computers just got a massive boost from a brand-new cutting-edge microchip.
iPhone sales tallied nearly $72 billion in its latest quarter, a new quarterly record that easily beat the $67.5 billion estimate by 6%. Analysts expect another strong quarter in the company’s iPhone segment, aided by increasing demand for the iPhone 13, which comes with highly sought-after 5G connectivity.
Mac revenue totaled $10.8 billion in Q1, easily crushing the $9.6 billion consensus estimate by a sizable 13.5%. In March of this year, Apple introduced the world’s most powerful home computer microchip to date, the M1 ultra, a new feat of engineering for the company. The microchip is expected to rival other cutting-edge chips from companies such as Advanced Micro Devices AMD and Nvidia NVDA.
Q2 EPS & Revenue Estimates
The Zacks Consensus EPS Estimate for Q2 currently sits at $1.43 per share, reflecting marginal earnings growth of 2% from the year-ago quarter. The estimate has remained unchanged over the last 60 days, with three out of four analysts positively revising their quarterly estimates. However, when looking at a longer time frame, the Consensus Estimate Trend for Q2 has climbed modestly from $1.38 per share over the last 90 days.
Looking at sales, the Zacks Consensus Estimate is pegged at $94.8 billion, displaying a notable 6% expansion in the top line from the year-ago quarter’s sales figure of $89.6 billion.
Image Source: Zacks Investment Research
Q2 Guidance
Given the uncertainty of COVID-19, Apple did not provide guidance for its upcoming Q2 in its latest earnings report. However, the company still expects to achieve solid year-over-year top-line expansion and set a quarterly revenue record despite significant supply constraints. Additionally, Apple expects quarterly revenue to cool off in Q2 and be lower than in 2022 Q1.
Microsoft
Pivoting away for a quick comparison, Microsoft MSFT, another big tech name, also reports quarterly results this week. For the upcoming report, the Zacks Consensus Estimate Trend has remained unchanged over the last 60 days, with one analyst negatively revising their estimate.
Over its last four quarters, MSFT has an average four-quarter trailing average EPS surprise of 11%, and in its latest quarter, Microsoft beat EPS estimates by close to 9%. The forecasted quarterly revenue estimate of $49 billion displays a top-line expansion of 17% from the year-ago quarter. Additionally, the Zacks Consensus EPS Estimate of $2.18 per share reflects year-over-year earnings growth of nearly 12%.
MSFT is currently a Zacks Rank #4 (Sell) with an overall VGM Score of a D and trades at a 29.4X forward-earnings multiple.
Microsoft Corporation Price, Consensus and EPS Surprise
Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote
Bottom Line
Overall, Apple has faced many headwinds throughout the quarter, with supply-chain bottlenecks, widespread microchip shortages, and COVID-19 vastly affecting its operations in China. However, Apple shares have displayed robust relative strength throughout the adversity.
Additionally, Apple released its most extensive and groundbreaking product line in history just last year with new models of the flagship iPhone, iPad, and Mac. To me, it seems that Apple is more than capable of providing investors with considerable gains in diverse market situations.
The company is also very shareholder-friendly, spending close to $500 billion in share repurchase programs over the last decade, and carrying a dividend yield of 0.54% with a five-year annualized growth rate of 7.8%.
The quarterly results will be watched like a hawk, and I expect Apple to deliver once again and provide uplifting guidance moving forward as we venture out of one of the most unique economic environments in recent history.
AAPL is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a B and trades at a 26.3X forward-earnings multiple.
Apple Inc. Price, Consensus and EPS Surprise
Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote
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