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Can iPhone X & Services Sales Drive Apple (APPL) Q1 Earnings?


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Apple AAPL is set to report first-quarter fiscal 2018 results on Feb 1. The top line is expected to benefit from robust iPhone X sales during the holiday season along with significant contribution from the rapidly-growing Apple Services segment.

Impressive Earnings Trend

Apple's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 6.35%.

The company's fourth-quarter fiscal 2017 earnings of $2.07 per share and revenues of $52.6 billion beat the Zacks Consensus Estimate of $1.87 and $51.2 billion, respectively.

The Zacks Consensus Estimate for revenues is currently pegged at $86.02 billion, reflecting year-over-year growth of almost 10%. The Zacks Consensus Estimate for earnings increased 6 cents to $3.81 over the last 30 days, reflecting 13.4% growth over the year-ago quarter.

iPhone ASP, Holiday Season: Key Catalysts

Apple's flagship device, iPhone, contributes almost 55% of revenues. In the fourth quarter, iPhone revenues inched up 2% from the year-ago quarter to $28.8 billion.

Top-line growth in the first quarter is likely to be driven by the company's diverse portfolio, which includes the iPhone X. Moreover, expected robust holiday season sales will drive revenues in the mature markets.

Apple's focus on "aggressive pricing" that resulted in a higher average selling price (ASP) from premium models - iPhone X, iPhone 8 and iPhone 8 Plus - is likely to boost the top line. We expect robust ASP to offset any weakness in the supply chain related to iPhone X, which might have hurt unit volume growth.

For the first quarter, the Zacks Consensus Estimate for total iPhone units sold is expected at 79.79 million, up almost 2% from the actual figure reported in fourth-quarter 2016.

The Zacks Consensus Estimate for revenues from iPhone and related products and services are projected around $59.31 billion, up 9.1% from the actual figure in the year-ago quarter.

Rapidly Growing Apple Services

Apple's Services segment, which includes revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, licensing and other services, continues to grow rapidly. At the end of the fourth quarter, the Services segment had more than 210 million subscribers. Revenues surged 34% year over year to nearly $8.5 billion.

For the first quarter, the Zacks Consensus Estimate for revenues from iTunes, Sofware and Services is at $8.65 billion, up 20.1% year over year.

Modest iPad Growth

The iPad product line has somewhat recovered in the last two quarters. Apple sold 10.3 million iPads in the fourth quarter, up 11% year over year, while revenues of $4.8 billion increased 14%.

Notably, iPad is gaining traction among schools driven by the wide range of multimedia features of the education specific iOS applications. This will drive unit volume sales in the first quarter, however, at a modest pace compared with the fourth quarter.

For the first quarter, the Zacks Consensus Estimate for revenues from iPad business is pegged at roughly $5.90 billion, up 6.5% year over year. The Zacks Consensus Estimate for total iPad units sold is at $13.45 million, up 2.8% year over year.

Apple Inc. Price and EPS Surprise

Apple Inc. Price and EPS Surprise | Apple Inc. Quote

What Does Our Model Say

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP . Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Apple has a Zacks Rank #3 and an Earnings ESP of +1.56%, which indicates a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Stocks to Consider

Here are a few stocks you may want to consider as our proven model shows that it has the right combination of elements to post an earnings beat this quarter.

Kemet KEM has an Earnings ESP of +2.94% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

NVIDIA NVDA has an Earnings ESP of +7.76% and a Zacks Rank #2.

Square SQ has an Earnings ESP of +1.84% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: SQ , AAPL , KEM , NVDA



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