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Apple Stock Higher After Impressive Quarter

Wayne Duggan

Apple, Inc. (ticker: AAPL) reported its fiscal fourth-quarter earnings after the market close on Wednesday afternoon and exceeded Wall Street expectations on both earnings and revenue. Shares initially traded higher by less than 2% after management delivered positive commentary on the critical holiday quarter.

Apple reported fourth-quarter earnings per share of $3.03 on revenue of $64.04 billion. Both numbers beat consensus analyst estimates of $2.84 and $62.99 billion, respectively. Revenue was up 2% from a year ago.

Apple investors also got their first official insight into the performance of Apple's newest family of lower-priced iPhone 11 devices. Apple reported fourth-quarter iPhone revenue of $33.36 billion, down 9% from a year ago. Analysts had anticipated $32.42 billion. Services revenue was $12.51 billion on the quarter, up 18% from a year ago and ahead of analyst expectations of $12.15 billion.

[See: 10 of the Best Tech Stocks to Buy for 2019.]

Apple's iPhone revenue showed signs of stabilization in the fourth quarter after dropping 13.4% in the third quarter. Apple took a gamble by lowering the prices of its new iPhone models compared to the previous year's models for the first time. The company's fourth-quarter numbers suggest that gamble is paying off.

Despite an ongoing trade dispute, Apple reported $11.134 billion in Greater China revenue in the quarter. Thanks to the lower-priced iPhones, Greater China sales were down just 2.4% compared to a year ago.

Wearables, home and accessories revenue was another bright spot on the quarter, up 54.3% from a year ago to $6.52 billion.

"We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from services, wearables and iPad," Apple CEO Tim Cook says in a statement.

Cook says Apple is optimistic about the critical holiday quarter as well, especially ahead of the launch of streaming service Apple TV+ in two days.

Looking ahead, Apple guided for fiscal first-quarter revenue of between $85.5 billion and $89.5 billion, gross margin of between 37.5% and 38.5% and operating expenses of between $9.6 billion and $9.8 billion. The midpoint of revenue guidance was above consensus analyst estimates of $86.92 billion.

[See: 10 of the Best Stocks to Buy for 2019.]

Apple has been a market leader in 2019, gaining more than 50% year-to-date in 2019 ahead of this week's report. Much of Apple's 2019 gains may be attributed to a relief rally after the tech giant has mostly navigated the trade dispute unscathed up to this point. Unfortunately, Apple is not quite out of the trade war woods just yet given the company is facing potential 15% tariffs on certain Chinese imports, including iPhones and iPads, starting in December.

Bank of America analyst Wamsi Mohan says strong services growth, an aggressive capital return program and tailwinds from 5G wireless network rollouts in 2020 give long-term investors plenty of reasons to be buying AAPL stock.

"There is an overarching concern among growth managers (who are materially underweight) that near term expectations do not matter as much heading into a potentially strong 5G cycle in 2020, which can create an upward bias on any pullback," Mohan says.

Bank of America has a "buy" rating and $260 price target for AAPL stock.



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