Apple (AAPL) Earnings Growth Expectations: Should You Invest?

Wall Street analysts are predicting a rise in Apple’s (AAPL) earnings for the quarter ending in September 2024, alongside an increase in revenue. While this expected growth is a crucial indicator of the company's financial health, how the actual earnings align with these forecasts could significantly influence the stock's immediate performance.

The earnings report is scheduled for release on October 31, 2024. If the report reveals results that exceed expectations, it might lead to an increase in the stock price. Conversely, disappointing figures could cause the stock to drop.

Management’s commentary about market conditions during the earnings call will play a pivotal role in shaping future earnings expectations and the immediate market reaction to the results. Therefore, assessing the likelihood of a positive surprise in earnings per share (EPS) is important.

Consensus Earnings Estimate

Analysts are forecasting that Apple will report earnings of $1.54 per share. This figure represents a year-over-year increase of 5.5% and is indicative of stable growth.

Moreover, the expected revenue for the quarter is $94.43 billion, also reflecting a 5.5% increase compared to the same quarter last year.

Trends in Estimate Revisions

Over the past 30 days, the consensus EPS estimate has been adjusted downward by 0.9%. This adjustment signals that analysts have been re-evaluating their predictions and suggests a more cautious outlook regarding Apple’s earnings.

It’s important for investors to remember that while this change captures the aggregate sentiment, individual analysts may have varied views independent of this trend.

Insights from Earnings Whisper

Changes in earnings estimates leading up to a company's earnings report can reveal insights into the economic conditions affecting the business. This is where the Zacks Earnings ESP (Expected Surprise Prediction) comes into play.

This model compares the Most Accurate Estimate—an updated version of the consensus estimate—with the Zacks Consensus Estimate. The aim is to leverage the latest analyst projections, which may contain fresh data that can affect earnings outcomes.

A positive Earnings ESP indicates a higher chance of beating earnings estimates. This is particularly relevant when paired with a Zacks Rank of #1 (Strong Buy), #2 (Buy), or #3 (Hold). Historically, stocks that exhibit this combination tend to see positive surprises nearly 70% of the time. A strong Zacks Rank further strengthens this predictive power.

Conversely, a negative Earnings ESP doesn't automatically signal an earnings shortfall. Research shows that it can be challenging to accurately predict earnings beats when stocks possess a negative Earnings ESP reading and/or a Zacks Rank of #4 (Sell) or #5 (Strong Sell).

Understanding Apple’s Position

As it stands, Apple’s Most Accurate Estimate is lower than the Zacks Consensus Estimate, indicating a growing bearish sentiment among analysts regarding the company’s earnings prospects. This situation has resulted in an Earnings ESP of -17.71%. Despite this, Apple currently holds a Zacks Rank of #3.

The combination of a negative Earnings ESP and a neutral Zacks Rank makes it difficult to predict a likely earnings beat for Apple in the upcoming report.

Insights from Earnings Surprise History

When analysts formulate earnings projections, they often reference the company's ability to meet or exceed previous estimates. Apple's historical performance is worth noting in this context.

In the last reported quarter, analysts had expected Apple to earn $1.34 per share, but the company surpassed this with an actual report of $1.40, resulting in a positive surprise of 4.48%. Over the past four quarters, Apple has exceeded consensus EPS estimates consistently.

Conclusion

Whether Apple achieves an earnings beat or falls short may not be the sole factor influencing its stock price post-release. Many companies may still see declines even after beating expectations due to other neutralizing factors, while unexpected events can cause stocks to rally despite earnings misses.

Investing in stocks projected to exceed earnings forecasts generally increases the chances of a positive outcome. Therefore, evaluating a company's Earnings ESP and Zacks Rank prior to earnings announcements is prudent. Utilize tools like the Earnings ESP Filter to identify promising stocks to buy or sell before their earnings reports.

While Apple may not appear to be the best candidate for an earnings surprise at this moment, investors should consider additional factors before deciding whether to invest in the stock or steer clear ahead of its earnings announcement.

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Apple, Earnings, Investing