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Apple & Other Tech Giants Set to Beat Earnings This Season

Tirthankar Chakraborty

The tech sector has been going through a topsy-turvy ride of late with the ongoing trade war between the United States and China taking a toll on hardware manufacturers, while social media giants are bearing the brunt of intense scrutiny over privacy scandals. Thus, it was widely anticipated that tech earnings in the second quarter isn’t going to be encouraging. However, tech stocks have painted a comforting picture so far, proving the detractors wrong thankfully. We now have 59 tech companies of the S&P 500 that have reported earnings so far. Out of these companies, earnings are up 5.3% from the same period last year on 7.8% higher revenues, with 77.3% beating EPS estimates and 59.1% beating revenue estimates (read more: A Reassuring Earnings Picture).

In fact, major tech players including Oracle, Micron, Microsoft and Facebook to name a few have already surpassed Wall Street estimates, putting doubts about the fundamental strength of the tech sector to rest. However, all eyes are currently on Apple Inc. AAPL, as to whether the tech behemoth can come up with promising results when it reports after the closing bell on Jul 30. It goes without saying, that the iPhone maker’s performance will have big impact on the overall tech sector. After all, the company contributes more than 12% to the tech sector’s total earnings.

Apple Earnings: Will it Top or Flop?

Of late, Apple has been underperforming. In fact, the company’s revenues of $58 billion fell 5% on a year-over-year basis, while profits were down 10%. The dismal figures primarily come down to weak iPhone sales, which took a beating owing to weaker demand in China, on account of the U.S./China trade spat. Consumers too are holding back from purchasing new products. In the March quarter, iPhone revenues individually tanked 17% year over year. Moreover, the new iPhone that is expected to come in September will only have modest hardware upgrade, and the arrival of faster 5G phones can’t be expected before 2020.

Nevertheless, every cloud has a silver lining. CEO Tim Cook recently mentioned that the company has introduced new pricing changes and new trade-in policies in China, which are helping the company return to growth.

By the way, the company’s service revenues are also improving. For instance, Apple Pay, Apple Music, Apple Care, App Store, and cloud services are increasing at a double-digit rate, and had contributed 20% to Apple’s revenue in the fiscal second quarter. The iPhone maker now has 390 million paid subscribers and management expects it to increase to 500 million by 2020. And why not? The company’s new services including the Apple Card and Apple TV+ will certainly help improve the number of paid subscribers.

Analysts, thus, widely expect Apple to notch sales of $53.31 billion in the June quarter, slightly more than $53.26 billion reported a year ago.

Basically, Apple is in good shape. After all, it has already returned a massive amount of cash, which the company has accumulated from selling iPhones and iPads, to its shareholders. To top it, the company is investing in the future. It is aiming to spend significant amount of money on data centers, thanks to the growing demand for its services. That’s why, the Zacks Rank #3 (Hold) company has an Earnings ESP of +2.29%, which increases the possibility of a positive surprise. This is Zacks’ proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Apple Inc. Price and EPS Surprise

At the same time, the Zacks Consensus Estimate for current-year earnings has trended upward over the past 90 days as estimates moved up from $11.38/share to $11.47/share.

And upbeat earnings performance, no doubt, will lead to a rally in the share price. In fact, the company has already outperformed the broader Computer - Mini computers industry on a year-to-date basis (+32.9% vs +31.1%).

But, why just look into Apple for earnings beat? Investors should be little more adventurous and bet on other tech stocks poised to beat. Such stocks also flaunt a positive Earnings ESP. What’s more, these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let us, have a look at them –

CACI International Inc CACI provides information solutions and services in North America and internationally. The company is expected to report earnings results for the quarter ending June 2019 on Aug 14. CACI International has an Earnings ESP of +4.02%.

CACI International, Inc. Price and EPS Surprise

Ciena Corporation CIEN provides network hardware, software, and services that support the transport, switching, aggregation, service delivery, and management of video, data, and voice traffic on communications networks. The company is expected to report earnings results for the quarter ending July 2019 on Aug 29. Ciena has an Earnings ESP of +5.26%.

Ciena Corporation Price and EPS Surprise

Cisco Systems, Inc. CSCO designs, manufactures, and sells Internet Protocol based networking and other products. The company is expected to report earnings results for the quarter ending July 2019 on Aug 14. Cisco Systems has an Earnings ESP of +1.53%.

Cisco Systems, Inc. Price and EPS Surprise

CGI Inc. GIB provides information technology (IT) and business process services. The company is expected to report earnings results for the quarter ending June 2019 on Jul 31. CGI has an Earnings ESP of +1.27%.

CGI Group, Inc. Price and EPS Surprise

In fact, shares of CACI International, Ciena, Cisco Systems and CGI have gained a solid 50.4%, 35.5%, 31.4% and 30.4%, respectively, so far this year.

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Click to get this free report Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report Apple Inc. (AAPL) : Free Stock Analysis Report CACI International, Inc. (CACI) : Free Stock Analysis Report CGI Group, Inc. (GIB) : Free Stock Analysis Report Ciena Corporation (CIEN) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research