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Buy Apple Ahead of Q2 Earnings with AAPL Stock up 13% in the Last Month?

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Apple (AAPL - Free Report) shares have surged 13% in the last month and popped once again Tuesday to try help the stock do something that it hasn’t done since 2010. The question now is should investors think about buying Apple stock with its Q2 fiscal 2019 earnings due out at the end of the month?

Overview

AAPL stock jumped roughly 1% through morning trading Tuesday to help put Apple shares on track for their 10th straight day of gains for the first time since October 2010. Apple is of course not alone, with many of its FAANG peers all up big in 2019, along with the market as a whole. The tech giant’s comeback is largely a function of its massive late 2018 selloff, coupled with some positivity that the company’s Services business will help make up for slumping iPhone and Chinese sales.

Apple unveiled at a March 25 event some of its plans for a more robust Services future. This included the company’s long-awaited streaming TV platform that CEO Time Cook hopes will one day compete alongside Amazon (AMZN - Free Report) Prime, Netflix (NFLX - Free Report) , Hulu, and Disney (DIS - Free Report) . Yet, most of the details surrounding Apple TV+ remain unclear, aside from the fact that Steven Spielberg, M. Night Shyamalan, Jennifer Aniston, and other Hollywood giants have TV shows in the works.

On top of its new streaming TV service, the company showed off its $9.99 per month magazine-heavy news service, a new Apple credit card in partnership with Goldman Sachs (GS - Free Report) , and a subscription-based gaming offering called Apple Arcade.

And Apple is already sitting on a successful Service. The company’s Spotify (SPOT - Free Report) competitor Apple Music has reportedly surpassed the Swedish streaming music power in terms of U.S. subscribers, according to a recent Wall Street Journal report. Apple Music now has more than 28 million paid users in the U.S., compared to Spotify’s 26 million.

Spotify is still far larger on a global scale. Nonetheless, Apple’s rapid ascendance in the streaming music space helps show just how powerful its brand is and how vital tapping into its 1.4 billion active devices—including 900 million iPhones—will be going forward.

 

 

Q2 Outlook

There has been plenty of Apple news this year and its holiday quarter woes were well-documented. But it is worth remembering that Apple’s Q1 fiscal 2019 revenue slipped 4.5%, due in large part to a 15% decline in iPhone sales and a 27% drop off in Greater China. The world’s second-largest economy, which includes Hong Kong and Taiwan, accounted for roughly 16% of quarterly sales, while iPhone sales were responsible for 61% of Q1 revenue.

Looking ahead, our current Zacks Consensus Estimate calls for Apple’s adjusted Q2 earnings to tumble 13.2% on a 5.8% decrease in revenue. More specially, second-quarter iPhone revenue is projected to fall roughly 18% from $38.03 billion in the year-ago period to $31.22 billion, based on our current NFM estimate.

Meanwhile, Apple’s Services unit is projected to surge approximately 21% from $9.19 billion to hit $11.16 billion. Last quarter, Apple’s Services unit popped roughly 19% to reach $10.875 billion.

 

 

Bottom Line

Clearly, Apple looks to be headed for another disappointing quarter. But Wall Street and investors will likely adapt to whatever proves to be the new normal for AAPL as the company tries to evolve and expand as its once-mighty growth business, the iPhone, looks poised for a significant slowdown. Microsoft (MSFT - Free Report) , for example, has been able to expand into IoT, cloud computing, and much more. Apple runs a very different business, yet the hope is that it will be able to expand through Services, and perhaps even a new game-changing product.

Cook has faith in the health-based future of the Apple Watch and the company recently lowered the price of many of its products, including iPhones, on its online store in China. The move could help the company better compete against less expensive options from the likes of Xiaomi and Huawei.

Apple is still trading below the S&P 500’s average at 16.6X forward 12-month Zacks Consensus EPS estimates, which falls in line with its industry’s average. Apple is currently a Zacks Rank #3 (Hold) and is also a dividend payer, with a 1.46% yield. And despite AAPL’s recent climb, shares of Apple rest roughly 15% below their 52-week high of $233.47 per share. This gives the stock room to run heading into its earnings release.

With all that said, it seems up to investors at this point to decide if they want to buy Apple stock amid what are relatively uncertain times of the tech titan. Apple is scheduled to release its Q1 fiscal 2019 financial results on Tuesday, April 30.

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