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Is Apple (AAPL) Poised to Beat Earnings Estimates?

Zacks Equity Research

We expect Apple, Inc. (AAPL) to beat expectations when it reports second quarter fiscal 2014 results on Apr 23, 2014. Last quarter, it posted a 3.28% positive surprise. We note that Apple has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 2.39%.

Why a Likely Positive Surprise?

Our proven model shows that Apple is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +0.49%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3  (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.  

The combination of Apple’s Zacks Rank # 3 and +0.49% ESP makes us very confident in looking for a positive earnings beat this quarter.

What is Driving the Better Than Expected Earnings?

China is an incredibly important market for Apple and its multi-year agreement with China Mobile (CHL) is crucial in this regard. By the start of 2014, Apple was selling iPhones through China Mobile in just about 16 cities. However, by the end of 2014 this figure is projected to rise to about 300 cities.

This deal is already bearing fruits as iOS revenues from China have already increased 70.0% this quarter, as per apps analytics firm Apps Annie.

We believe that iPhone unit sales will be eagerly watched by investors. The company recently introduced the iPad with retina display and the much-awaited Carplay, both of which are expected to boost growth and profitability of the company in the near term.

Other Stocks to Consider

Apple is not the only firm looking up this earnings season. We also see likely earnings beats coming from these 3 industry peers:

On Semiconductor Corp. (ONNN), Earnings ESP of +6.67% and Zacks Rank #1 (Strong Buy)

Invensense Inc. (INVN), Earnings ESP of +28.57% and Zacks Rank #2 (Buy)

Read the Full Research Report on AAPL
Read the Full Research Report on ONNN
Read the Full Research Report on CHL
Read the Full Research Report on INVN

Zacks Investment Research