Apple Second quarter earnings forecast: AAPL is a good buy

Apple Second quarter earnings forecast: AAPL is a good buy

If you are an investor in growth and technology stocks, you are probably wondering when the sentiment is going to turn back around in favor of those stocks as a long-term investment. Starting in the fall of 2021, many of the top growth and technology stocks have fallen in price by 10 to 30% or more as interest rates are expected to rise, supply chain issues have impacted semiconductor production, and inflation has driven up prices. The price of Apple, Inc (NASDAQ:AAPL) stock rose to a high of nearly $183 before dropping back down to the current price of $161.79 as of market close on 4/22/22.

Quarterly sales records were set in the first quarter of 2022, and the second quarter is likely to be much better (quarter ending in March). In its Q2 earnings report, Apple is expected to announce yet another dividend rise as well as increased share buybacks. Potential slowdowns in the June quarter owing to China lockdowns and supply chain bottlenecks may have a short-term impact on the stock price, but the stock remains a great buy and hold in the long run.

Highlights

  • Considering the fundamental, technical, and macroeconomic factors, as well as investor sentiment and favorable shareholder actions, all indications are that Apple is fairly priced today but still offers a good value for the long-term investor. I rate Apple a Buy ahead of earnings, especially if the price drops below $160 in the next few days ahead of the report. In this article I want to explain my reasoning by considering each of the factors.

  • With the company due to report earnings after the market close on Wednesday, April 27, investors will be looking for clues to forward guidance in light of the current bearish market environment. It is my opinion that Apple will once again surprise with an earnings beat, and at the same time are likely to announce a new product, such as an iCar (which they filed a patent on), or the AR/VR headset that is rumored to be on the horizon, that will once again shake up the marketplace and raise the stock to a new level.

Over the past 6 months AAPL stock has traded in a similar manner to the overall market and the technology sector (using XLK as a benchmark) but offering a higher return. The stock is finding support at the $150 level and could drop as low as that level before turning upward again if the earnings report is favorable, as I expect it will be.

The forward P/E sits at about 26, which is slightly above the 5-year average, and slightly above the sector median. But Apple gets an A+ in Profitability based on SA quant factors, so the quality of earnings justifies the higher valuation. Apple is a cash flow machine with a net income margin of 26.5% and levered FCF margin of 21%. Operating cash flow growth is not too shabby either, at 26% YOY.