Will Apple Beat on Q2 Earnings Amid iPhone Slump? ETFs in Focus

All eyes are on technology giant Apple AAPL, which is set to release second-quarter fiscal 2024 results after market close on May 2. Since Apple accounts for nearly 7% of the total market capitalization of the entire technology sector on the S&P 500 Index, it is worth taking a look at its fundamentals ahead of its quarterly results.
Apple shares are down about 7.6% over the past three months, underperforming the industry's decline of 3.9%. The trend is expected to reverse, given that the tech giant has a reasonable chance to beat earnings estimates. It saw positive earnings estimate revision activity, which is generally a precursor to an earnings beat.
This has put investors' focus on ETFs having the largest allocation to the tech titan. Technology Select Sector SPDR Fund XLK, Vanguard Information Technology ETF VGT, MSCI Information Technology Index ETF FTEC, iShares US Technology ETF IYW and Vanguard Mega Cap Growth ETF MGK have Apple as the top or second firm with a double-digit allocation and sport a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy).

Inside Our Methodology

Apple has an Earnings ESP of +0.93% and a Zacks Rank #3 (Hold). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat.
Apple saw a positive earnings estimate revision of a penny over the past 30 days for the fiscal second quarter. Analysts raising estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The Zacks Consensus Estimate indicates modest year-over-year decline of 0.7% for earnings and 5.1% for revenues. The company has a strong track record of positive earnings surprises. It delivered an average earnings surprise of 5.20% in the trailing four quarters.
The stock has a top Growth Score of A. It currently has an average brokerage recommendation of 1.73 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated based on the actual recommendations (Buy, Hold, Sell etc.) made by 28 brokerage firms. The current ABR compares to an ABR of 1.80 a month ago based on 28 recommendations. Of the 28 recommendations deriving the current ABR, 17 are Strong Buy and three are Buy. Strong Buy and Buy, respectively, account for 60.71% and 10.71% of all recommendations. A month ago, Strong Buy made up 57.14%, while Buy represented 10.71%.
Based on short-term price targets offered by 28 analysts, the average price target for Apple comes to $204.88. The forecasts range from a low of $158.00 to a high of $250.00.

What to Watch

On the last earnings call, the tech giant offered a cautious outlook for the ongoing quarter. Apple CFO Luca Maestri indicated that iPhone sales in the March quarter would be similar to last year's $51.33 billion in revenues. This excludes $5 billion in sales attributed to outperformance a year ago as supply recovered from COVID-19 shutdowns and caught up with demand.

Are Apple iPhone Sales a Concern?

Apple stock has been struggling with concerns about iPhone sales, particularly in China. Sales of its flagship product are facing significant headwinds in the crucial Chinese market due to rising competition from domestic smartphone makers as well as national security concerns. Additionally, consumers globally are holding their iPhone devices for longer before upgrading, further weighing on demand and sales growth.
According to the preliminary data from research firm IDC, Apple lost its crown to South Korean rival Samsung as the world's biggest mobile phone seller after its shipments fell about 10% in the quarter ended March. Samsung retook the lead in the global market with a 20.8% share, beating Apple's 17.3% share, which has been dented by slowing sales in China.
IDC revealed that Apple shipped 50.1 million iPhones in the quarter ended March, down from the 55.4 million units in the year-ago quarter. It was the biggest drop in iPhone sales since COVID-19 lockdowns caused global supply chain chaos in 2022. A separate new report from market research firm Counterpoint Research shows that Apple's iPhone sales dropped sharply by 19.1% year over year in the quarter ended March in China amid strong competition from domestic brand Huawei.

ETFs in Focus

Technology Select Sector SPDR Fund
Technology Select Sector SPDR Fund targets the broad technology sector and follows the Technology Select Sector Index. It holds about 65 securities in its basket, with Apple making up 20.3% share. Technology Select Sector SPDR Fund has key holdings in software, semiconductors and semiconductor equipment, and technology hardware, storage and peripherals.
Technology Select Sector SPDR Fund is the most popular and heavily traded ETF, with an AUM of $62.7 billion and an average daily volume of 7 million shares. The fund charges 9 bps in fees per year.
Vanguard Information Technology ETF
Vanguard Information Technology ETF manages $62.6 billion in its asset base and provides exposure to 313 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, Apple accounts for a 15.4% share. Semiconductors, systems software, technology hardware storage & peripheral, and application software are the top four sectors.
Vanguard Information Technology ETF has an expense ratio of 0.10%, whereas volume is solid at nearly 433,000 shares.
MSCI Information Technology Index ETF
MSCI Information Technology Index ETF is home to 303 technology stocks with an AUM of $9.3 billion. It follows the MSCI USA IMI Information Technology Index. Apple accounts for a 15.4% share in the basket.
MSCI Information Technology Index ETF has an expense ratio of 0.08%, while volume is solid at 246,000 shares a day.
iShares US Technology ETF
iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, giving investors exposure to 131 U.S. electronics, computer software and hardware, and informational technology companies. Apple makes up 15.3% of the assets.
iShares Dow Jones US Technology ETF has an AUM of $15.7 billion and charges 40 bps in fees and expenses. Volume is good as it exchanges 931,000 shares a day.
Vanguard Mega Cap Growth ETF
Vanguard Mega Cap Growth ETF offers diversified exposure to the largest growth stocks in the U.S. market. It tracks the CRSP US Mega Cap Growth Index and holds 79 securities in its basket, with Apple accounting for 11.9% of the total assets.
Vanguard Mega Cap Growth ETF charges 7 bps in annual fees and trades in a good volume of around 303,000 shares a day on average. The fund has an AUM of $18.4 billion.

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