Apple (NASDAQ:AAPL) has not been immune to the effects of the novel coronavirus as Apple stock struggles to retake this year’s gains.
The pandemic has disrupted its supply chain, shut down Apple stores, forced product launches online, and caused shortages of some products. Despite the challenges, the company actually reported modest revenue and earnings gains for its second quarter. Apple stock slid immediately after the Q2 earnings report on April 30, but has since gained that back and then some.
AAPL remains in negative territory for 2020, but its Q2 earnings show the company has been more resilient to the coronavirus than expected.
Second-Quarter Earnings and Apple Stock
On April 30, Apple reported its earnings for Q2 2020. The results were better than expected, given the impact of the coronavirus pandemic.
Adjusted EPS of $2.55 topped Wall Street expectations of $2.26, while revenue of $58.31 billion topped the projected $54.54 billion. Operating income and net income were down year-over-year, but that revenue managed to eke out 1% growth compared to the same quarter last year.
That’s pretty impressive considering Apple’s sales of iPhones in China were hammered through February (down a reported 60%), the company experienced iPhone shortages in the U.S. in early March, then shuttered all U.S. Apple Stores — as well as global retail outlets outside of China — starting March 14.
“Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables,” Apple CEO Tim Cook wrote.
The company also announced an increased dividend of 82 cents per share (up 6%) will be payable on March 14. In addition, Apple is increasing its share repurchase program by an additional $50 billion.
Signs of Resilience
Apple’s second-quarter results were not what investors are accustomed to seeing from the company. Apple stock dipped the following day, but it’s since gained that back, and continued its recovery since closing below $225 at the height of the March market selloff.
Those Q2 results have shown that Apple is proving more resilient than some had expected. Sure, iPhone revenue was off ($28.9 billion compared to $31.1 billion last year), but given the challenges — supply chain disruption, a virtual collapse of the Chinese market, stock shortages, the closure of its retail stores globally, and let’s not forget consumer anxiety over money — the company still sold a lot of iPhones.
In addition, Wearables had a record quarter and Service revenue set an all-time record. The $13.3 billion consumers spend on everything from Apple Music to Apple TV+ and Apple Pay was up 16.6% YoY. Even when people are in lockdown and not buying Apple hardware, they’re contributing to the AAPL bottom line by paying for subscriptions.
Looking forward, there are still challenges for Apple in 2020. In mid-April Goldman Sachs downgraded AAPL for the third time this year on concerns about an economic downturn and the potential that the 5G iPhone 12 launch could be delayed.
Worries about the economy remain. While there is still the possibility of an iPhone 12 launch delay, the company managed to avoid delays in releasing the second-generation iPhone SE. And the production ramp-up for that device was happening while much of the Chinese supply chain was still shut down or running a lower capacity. That raises hope that any iPhone 12 launch disruption may be minimal.
Bottom Line for Apple Stock
For the most part, investment analysts are feeling good about AAPL and its prospects. There are concerns — including the risk of the 5G iPhone 12 being delayed, and the growing likelihood of a global depression — but it’s felt that Apple is well-positioned to make it through these challenges.
The Wall Street Journal polled 42 analysts and they have a consensus overweight rating for AAPL. Their average 12-month price target of $312.41 has 5% upside and would put AAPL ahead of its $293.65 close to end 2019.
Don’t expect to see massive gains if you buy Apple stock at this point. However, if you want to add AAPL to your portfolio, the company’s Q2 performance suggests it’s on track to weather the coronavirus pandemic.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
