Why you want to own Apple shares heading into Q2 earnings

Amdist the COVID-19 coronavirus pandemic, with Apple warning in mid-February that they did not expect to meet the revenue guidance they provided for the March quarter (Q220), why would anyone want to own Apple shares heading into Q2 earnings?

Apple Q2 earningsAaron Butler for Seeking Alpha.:

For one, the slew of Street downgrades over the last week underestimates the long-term outlook on iPhone and Services revenue, in my view, both of which should continue to support growth, driving upside to the earnings growth algorithm. Thus, Apple’s transformation into a services-oriented growth model, coupled with the continued expansion in its installed base, more than warrants the current multiple of ~22x, in my view. With additional optionality around the capital return likely to drive double-digit earnings growth potential, I expect further upside from here.

The release of a $399 iPhone SE is timely – it gives Apple a more competitively priced offering at a time when consumer incomes are likely dropping… Paid subscription growth has been a key bullish point thus far, crossing 480m last quarter, prompting management to set a new 600m target for CY20. Apple looks on track to beat this target, in my view, given subscription services could benefit from the increased indoor activities. Apple’s growing new services offerings (e.g., Apple TV+ and Apple Arcade) coupled with its growing installed base points toward continued services growth, in my view – even following a record 2019.

The recent work-from-home trend could also serve as a short-to-medium-term tailwind to Mac sales for the June quarter, assuming limited supply disruptions to PCs… Further, Apple’s ~$60bn in annual FCF generation, coupled with ~$100bn in cash on the balance sheet, means Apple has the flexibility to not only sustain but also grow its dividend through a recession while re-investing in the business.

MacDailyNews Take: There are plenty of excellent reasons why an investor would want to own Apple shares heading into Q2 earnings: a strong product portfolio that will benefit from the COVID-19-induced work-from-home trend, a strong balance sheet, growing Services, and a potential dividend hike.

Apple is slated to release Q220 results after market close on Thursday, April 30, 2020. We’ll have them for you as always right around 1:30pm PDT / 4:30pm EDT. Apple’s conference call to discuss Q220 results is scheduled to start right after that at 2:00pm PDT / 5:00pm EDT. We’ll cover the conference call with live notes as usual, too. Just check our home page around 1:45pm PDT / 4:45pm EDT on Thursday, April 30, 2020 for that link.

3 Comments

  1. Work, save, invest, if you own Apple or any combination of blue chip stocks (long), you will do very well, who you are or connections are will not matter. Just save 10-25% and invest.

  2. Apple’s share gains would have likely been amazing this year if not for the CoViD-19 pandemic which rather ruined it for Apple shareholders. Sometimes, there are things that happen you can never foresee. The U.S. handled the CoViD-19 crisis so poorly. I thought the U.S. would be on the ball, but apparently living in a democracy slows everything down to a crawl in an emergency situation. That’s something I never realized before. There is still no agreement on when citizens will be getting back to work. NYC is going to take a long time to recover from this mess and I can’t imagine how many businesses and jobs will be lost.

    I’m trying to think of how the Apple retail stores are going to manage with a store system based on touching products and how packed with customers Apple stores used to be. Maybe Hazmat suits for all customers entering the premises? I will definitely be staying clear of such an environment but then again, I have bought all my Apple products over the internet for the last 20 years or so.

    1. It isn’t the “democracy” that handled the Coronavirus crisis so poorly. It was the Trump Administration and the governmental organizations under the control of the Executive Branch.

      But look at the bright side. Trump “won” again with the U.S achieving by far the most confirmed Coronavirus Infections of any country in the world!

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.