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Buy Apple Stock After Earnings for Coronavirus Resilience & Buybacks?

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Stocks fell to start May after a busy week that saw the biggest names in tech, including Facebook (FB - Free Report) , Alphabet (GOOGL - Free Report) , and Microsoft (MSFT - Free Report) prove their resilience to the coronavirus economic downturn. Apple (AAPL - Free Report) on Thursday also topped our Zacks estimates, despite setbacks in China and elsewhere, and highlighted why investors might want to buy AAPL stock.

Apple’s First Pandemic Report   

Before we dive in, it is worth looking back to February 17, when Apple warned Wall Street that it was likely to miss its revenue guidance due to production and demand setbacks in China. AAPL has slowly tried to get back to something close to normal operations in the world’s second-largest economy.

Apple’s stores remained close throughout the U.S. and most other markets, and the Wall Street Journal reported earlier in the week that it was “pushing back the production ramp-up of its flagship iPhones coming later this year by about a month.” AAPL also didn’t provide revenue projections for its current quarter for the first time since it started to offer up true sales guidance in 2003.

The tech titan clearly still faces the potential for more possible setbacks and reduced demand for its high-priced iPhones and other consumer electronics, in the face of historic economic uncertainty. That said, Apple’s second quarter fiscal 2020 revenue popped roughly 0.50% from the year-ago period to $58.31 billion—AAPL rounded this figure up to 1% growth in its press release. Apple’s Q2 revenue topped our Zacks estimate by roughly 9%.

Apple’s expansion of its non-iPhone businesses paid off once again. The firm’s services unit, which includes its app store, its new streaming TV offering, and more, saw its revenue jump roughly 17% to a new all-time record.

On top of that, its wearables division surged 23% to a new quarterly record, driven by continued strength from its wireless AirPods headphones. This growth helped offset a 7% downturn in iPhone sales, which still accounted for 50% of Q2 revenue.

 

 

 

 

 

 

 

 

Apple’s Money Tree…

Meanwhile, AAPL’s adjusted earnings jumped 3.7% to $2.55 a share, which easily beat our $2.09 a share estimate. The company’s operating cash flow also jumped by $2.2 billion to $13.3 billion. Apple ended the quarter with $193 billion in cash and marketable securities, alongside total debt of $110 billion, which left it with $83 billion in net cash.

Investors should also be pleased to note that Apple raised its quarterly cash dividend by 6% to $0.82 a share—its next dividend will be payable on May 14 to shareholders of record on May 11. Apple’s current dividend yield rests 1.06%, which tops the 10-year U.S. Treasury’s 0.62% and compares favorably with Microsoft’s 1.16%.

On top of that, Apple’s board authorized a $50 billion increase to the current stock buyback program. This is great for investors. It also shows how strong AAPL’s balance sheet is and proves management remains confident despite near-term setbacks.

Plus, the announcement stands in contrast to other big-name such as AT&T (T - Free Report) that have suspended their repurchase programs during the coronavirus.

Bottom Line

Looking ahead, our current Zacks estimates call for Apple’s fiscal 2020 revenue to slip -1.34% to $256.67 billion, with its earnings set to climb marginally. Clearly, Apple’s outlook is fluid, and these estimates will likely change as analysts process all the available information.

Apple stock slipped through morning trading Friday, but it’s up nearly 30% since its March 23 lows. Despite the recent run, AAPL shares still rest roughly 11% off their 52-week highs. Even if the stock falls again, longer-term investors will likely look back in a year from now and think that $290 a share for Apple is a steal.

In the end, investors should see Apple as one of the safer plays on Wall Street during the pandemic even though it is a consumer facing firm. And if AAPL shares do pull back in the near-term, as investors take some profits or sell in coronavirus fear, it will offer an even stronger buying opportunity.  

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