Financial Advisors Shine Their Spotlight on Apple Inc (AAPL) Following Better-Than-Expected Earnings, But Weak Guidance and Falling iPhone Sales
The US stock market reversed its trajectory last week and saw a sell-off that snowballed Friday, February 2 and Monday, February 5, resulting in a combined 2,100-point drop in two days and historic declines of the Dow Jones Industrial Average. Between January 29 and February 2, the Dow Jones Industrial Average lost 4.12%, while the S&P 500 and Nasdaq Composite slid by 3.85% and 3.53%, respectively. All indices erased most of the gains captured in the first month of 2018 by Friday and went into red territory year-to-date on Monday, Feb 5.
Given the general sentiment that the stock market had been overheated, many investors and analysts felt that the sell-off was long overdue. At the same time, while the main reasons for the decline were macroeconomic, there aren’t concerns that the market is entering into bearish territory but is rather experiencing a correction. The decline among stocks started on January 29 with the jump in 10-year treasury yields (often used as an indicator of the US economy), with investors becoming concerned that higher interest rates might hinder the bull market. On Tuesday, yields shot higher, as the Federal Reserve started its two-day monetary policy meeting and stock market continued its fall amid fears that higher inflation will lead central banks to tighten monetary policy faster than anticipated.
On Wednesday, the main stock indexes opened higher, rebounding from the previous days, but gave up the gains after the Fed left the key interest rate unchanged while increasing its assessment of the US economy, saying that it expects inflation to grow this year and stabilize at around 2% (the Fed’s target). Towards the end of the week, the stocks dropped on the back of a stronger-than-expected jobs report that showed the US economy added 200,000 jobs in January, versus expectations of 180,000. At the same time, wages increased by 2.9% on an annualized basis, the fastest annual pace since June 2009. The report from the Bureau of Labor Statistics added to concerns regarding a faster-than-expected interest rate growth.
Wall Street didn’t overlook the ongoing earnings season, with several major companies posting their earnings on Thursday and Friday. We are now halfway through the earnings season and the results look good, with 75% of companies in the S&P 500 reporting EPS above estimates, while 80% of companies posting better-than-expected sales, according to FactSet. Across sectors, all eleven sectors have posted EPS and revenue growth in year-on-year terms, with six sectors having reported double-digit earnings increase and three sectors having shown double-digit revenue growth.
Financial Advisors have also turned their attention to companies’ financial results, as major energy and tech companies released their latest earnings reports. According to TrackStar, InvestingChannel’s official newsletter capturing and analyzing the trends of Financial Advisors, the list of the 20 most searched tickers among financial advisors between January 28 and February 3 included nine companies that reported their results last week and seven companies that posted their earnings the previous week. The list is dominated by tech companies, with Apple Inc (NASDAQ:AAPL) and Amazon.com, Inc. (NASDAQ:AMZN) at the top, after both companies posted better-then-expected results on Thursday evening, with the latter’s stock hitting an all-time high. On the third spot was General Electric Company (NYSE:GE), which released its earnings report January 24, but last week, the company made headlines on the back of several developments, including analyst downgrades, SEC probe regarding GE’s power-equipment business and comments from billionaire Mario Gabelli, who said that he had started to buy the stock.
Let’s now circle back to Apple Inc (NASDAQ:AAPL), which was the most-searched ticker among Financial Advisors last week. The iPhone maker reported its fiscal first-quarter results on Thursday and while the stock skyrocketed after-hours on better-than-expected results, the following day they gave up the gains and slid by 4% on Friday on disappointing forward guidance.
Apple Inc (NASDAQ:AAPL) reported EPS of $3.89, versus estimates of $3.86, while revenue of $88.30 billion was higher than the expected $87.28 billion. However, the company sold 77.3 million iPhones during the December quarter, which came short of a FactSet estimate of 80 million. The company also sold fewer iPhones last quarter compared to the same period of the previous year, when it hit 78 million units, but in financial terms, the results were better compared to the last year due to higher average iPhone prices. The average iPhone price increased to $796 in the December quarter, up from $755.78 expected.
At the same time, Apple Inc (NASDAQ:AAPL) said it expects revenue between $60 billion and $62 billion for the current quarter, lower than analyst expectations of $65.73 billion. The company also forecasts profit margin of 38% to 38.5%, also slightly below estimates of 38.9%. In this way, Apple Inc (NASDAQ:AAPL) expects either fewer iPhone sales this quarter, or anticipates to sell phones that are more expensive to manufacture or sold at lower prices.
Other positive news that Apple Inc (NASDAQ:AAPL)’s CEO Tim Cook mentioned during the conference call were the all-time high penetration of Apple’s ecosystem - the company having a customer base of 1.3 billion devices. The tech giant’s cash pile also hit a record high of $285.1 billion and with the tax reform in place, the company plans to pursue a better capital structure.