Should You Buy Apple (AAPL) Stock Ahead of Q2 Earnings?

Apple AAPL is set to report its second-quarter fiscal 2024 results on May 2.

The Zacks Consensus Estimate for fiscal second-quarter revenues is currently pegged at $89.99 billion, indicating a decline of 5.11% year over year. The consensus mark for earnings is currently pegged at $1.51 per share, up by a penny over the past 30 days. However, the figure indicates a 0.66% decrease from the figure reported in the year-ago quarter.

Apple has been one of the top performers in the past 12 months with consistent earnings performance. Its earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the earnings surprise being 5.20% on average.

However, Apple has been suffering from lower demand for the iPhone, a weak China market, stiff competition in the smartphone market and a worsening regulatory environment. These factors have hurt share price movement, which has declined 12.1% year to date, underperforming the Zacks Computer & Technology sector’s return of 10.2%.

 

Apple Inc. Price and EPS Surprise Apple Inc. Price and EPS Surprise

Apple Inc. price-eps-surprise | Apple Inc. Quote

 

iPhone Sales Likely to Decline in Fiscal Q2

Apple’s fortunes are heavily reliant on the iPhone, which is by far its biggest revenue contributor. The device accounted for 58.3% of net sales in the last reported quarter, wherein sales increased 6% year over year to $69.7 billion.

The company expects the March quarter’s (second-quarter fiscal 2024) iPhone revenues to be like that of the year-ago quarter’s figure after removing the additional $5 billion it generated due to pent-up demand for iPhone 14 and iPhone 14 Pro Max in the year-ago quarter.

Our model estimates for fiscal second-quarter iPhone net sales are pegged at $46.99 billion, suggesting an 8.5% decline year over year. Apple is expected to have shipped roughly 53.3 million iPhones in the second quarter of fiscal 2024, per our model.

Per the latest Canalys report on worldwide smartphone shipments, Apple’s market share was 16% in the first quarter of calendar 2024, trailing Samsung’s 20%.

However, Apple’s reported plan to integrate Gemini, Google’s generative AI service, into iOS can be a gamechanger for iPhone shipments.

Services Growth to Remain Steady in Fiscal Q2

The weakness in iPhone sales is expected to be partially negated by the steady growth of the Services segment. An expanding paid subscriber base has been a key catalyst for the Services business, which is riding on the increasing popularity of the App Store and an expanding installed base of devices, albeit a worsening regulatory environment.

Apple has more than 1 billion paid subscribers across its Services portfolio. App Store continues to grab the attention of prominent developers from around the world, helping the company to offer exciting new apps that drive traffic.

Services like Apple TV+, Apple Arcade, Apple News+, Apple Card, Apple Fitness+ and Apple One bundle are expected to have contributed to overall growth.

Our estimate for fiscal second-quarter Services net sales is pegged at $23.07 billion, indicating 10.3% year-over-year growth.

Mac Sales Expected to Fall

PC segment witnessed growth in the first quarter of calendar 2024 after two years of decline. Per IDC’s latest report, 59.8 million PCs were shipped, up 1.5% from the year-ago period. Lenovo LNVGY topped the shipment list, trailed by HP HPQ and Dell Technologies DELL, in terms of market share.

Lenovo, HP, Dell and Apple had 23%, 20.1%, 15.5% and 8.1%, respectively. Moreover, in terms of shipment, Lenovo and HP witnessed growth of 7.8% and 0.2%, respectively, while Dell Technologies lost 2.2%. Apple witnessed 14.6% growth, the strongest on the list.

Nevertheless, Mac sales are expected to have declined in the to-be-reported quarter. Our estimate for fiscal second-quarter Mac net sales is pegged at $6.03 billion, indicating a 15.9% year-over-year decline.

Conclusion

Apple’s near-term results are expected to bear the brunt of the weak iPhone and Mac sales as well as weakness in China. Regulatory headwind, including the Department of Justice’s antitrust lawsuit, is expected to remain an overhang on the shares.

However, we believe the dip in Apple’s share price presents a buying opportunity, and it would be wise to buy ahead of the second-quarter fiscal earnings. Integration of AI into iPhone, solid Apple TV+ content, expanding installed base and strong Services business are key catalysts.

Currently, Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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.

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