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Bear of the Day: Apple (AAPL)

Tracey Ryniec

Apple (AAPL) has fallen to a Zacks Rank #5 (Strong Sell). The lowered estimates tell the tale.

Apple is a global technology company which manufactures the iPhone, the Apple Watch, Mac, iPad and Apple TV. It also provides services through the App Store, Apple Music, Apple Pay and iCloud.

The Decline in iPhone Sales

For the first time since the iPhone was introduced, sales of Apple's flagship and iconic product have declined year-over-year.

In the fiscal first quarter, sales fell 15% year-over-year while revenue from other products and the services business grew at 19%. However, the iPhone continues to be the dominant revenue generating segment.

Services reached an all-time revenue high of $10.9 billion in the quarter, up 19% year-over-year. Mac revenue was up 9% while Wearables, Home and Accessories jumped 33%.

Operating cash flow came in at $26.7 billion.

Apple managed to beat the Zacks Consensus Estimate in the quarter by a penny, posting $4.18 versus the consensus of $4.17 but this was only after issuing a warning on the quarter several weeks before.

The Analysts Are Busy

Not only were some estimates cut after the early January 2019 warning was issued, but more cuts came after the actual earnings report.

5 estimates have been cut, and 1 raised, in the week since the earnings report for fiscal 2019.

There has been a dramatic decline in the fiscal 2019 full year estimates. The Zacks Consensus has plunged to $11.39 from $13.44 in the last 90 days. That's now an earnings decline of 4.4% compared to fiscal 2018 because the company made $11.91 that year.

Analysts are also bearish on fiscal 2020. 6 estimates have been cut, and none raised, in the last 7 days which has pushed the 2020 Zacks Consensus down to $12.96 from $14.90 just 90 days ago.

The Zacks Rank is a short-term 1-3 month recommendation based on changes to analyst estimates.

Right now, the analysts have spoken. They are cutting.

Therefore, it's not a surprise that the Zacks Rank has fallen to a "Strong Sell."

Shares Rally Even as Analysts Cut Estimates

Apple's shares plunged on the earnings warning on Jan 3 but have soared 20% off those lows and are now up 10.4% year-to-date.

Are they cheap?

They were trading as low as 13x in the recent sell off but thanks to the estimate cuts and the surge in the share price, they are now trading at 15x again.

That's not been historically "cheap" for Apple shares.

The dividend is yielding 1.7%, but that's in line with peer Microsoft (MSFT) which is also yielding 1.7%. Microsoft is a Zacks Rank #3 (Hold).

If you're looking for a cheap technology stock that also has a decent dividend, consider Intel (INTC). It's trading at just 10x and pays a dividend yielding 2.4%. It's also a Zacks Rank #3 (Hold).

Zacks' Top 10 Stocks for 2019

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