Apple (AAPL – Free Apple Stock Report) has posted results for the first quarter of fiscal 2020 (year ends September 26th) that have given the bulls plenty to cheer about. Expectations were running quite high headed into the earnings release, with the Dow component having roughly doubled in value over the past year. And the tech behemoth, which has been skillfully led by CEO Tim Cook, did not disappoint, sending the stock to another record high in the mid-$320s.
For the December interim, share net clocked in at $4.99, 19% above the year-earlier tally and nicely ahead of our estimate and Wall Street's consensus view of $4.55. The top line of $91.8 billion was considerably stronger than anticipated, too, led by a resurgence in the cash-cow iPhone franchise, which still accounts for approximately 60% of the revenue mix.
Indeed, smartphone sales were up 8%, thanks to brisk demand for the new, competitively priced iPhone 11 models, most notably in the Greater China region (where growth has returned after a challenging stretch). And we anticipate this momentum to persist for the foreseeable future, especially with the company expected to debut ultra-fast 5G devices in the back half of 2020. This is despite likely headwinds in China from the recent Coronavirus outbreak and a further maturing of the broader smartphone market.
The company's other major business segments, meanwhile, namely services and wearables, have continued to shine. Revenue from the high-margined services division jumped 17% during the first quarter, to $12.7 billion, led by iCloud storage and other software offerings and the rollout of the new Apple TV video-streaming product. And the wearables category generated sales growth of an impressive 37%, with demand continuing to outstrip supply for the latest Apple Watch and AirPods releases.
Turning to the outlook, the company envisions March-period revenue of between $63 billion and $67 billion. This is an unusually wide range, reflecting uncertainty around the Coronavirus and the extent to which the illness will disrupt operations in Asia. That said, the top-line guidance is still better than we had expected. (We had been looking for second-quarter sales of roughly $62.5 billion.) And Apple appears really well positioned as we look out through the balance of the year.
Given the formidable results and upbeat outlook, we are hiking our profit view for fiscal 2020 by $0.85, to $14.15 a share. We continue to like this high-profile Dow name for buy-and-hold investors, as well. Though the valuation is becoming a bit frothy here, the issue should still provide good risk-adjusted returns over time, especially when factoring in dividend increases and the company's aggressive actions on the stock-buyback front.
About the Company: Apple Inc. is one of the world’s largest makers of PCs and peripheral and consumer products, such as the iPod digital music player, the iPad tablet, the iPhone smartphone, and the Apple Watch, for sale primarily to the business, creative, education, government, and consumer markets. It also sells operating systems, utilities, languages, developer tools, and database software.
– Justin Hellman
