We expect Apple, Inc. (AAPL) to beat expectations when it reports first quarter fiscal 2015 results on Jan 27. Last quarter, it had posted a 9.23% positive surprise. It is worth taking note that Apple has outperformed the Zacks Consensus Estimate in the preceding four quarters with an average positive surprise of 7.71%.

Why a Likely Positive Surprise?

Our proven model shows that Apple is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for us to be confident of an earnings surprise.

Hence, the combination of Apple’s Zacks Rank #1 (Strong Buy) and an earnings ESP of +0.78% makes us confident in looking for an earnings beat this quarter.

Estimate Revisions Remain Encouraging

On a bright note, Apple has seen positive earnings estimate revisions over the last 30 and 60 days. For the first quarter, the company recorded 7 positive estimate revisions over the last 60 days. Likewise, for fiscal 2015, it witnessed 11 positive revisions over the same period. 

A similar trend was observed in the past 30 days whereby Apple registered one positive estimate revision for the first quarter and 4 positive revisions for fiscal 2015. Notably, there has been no negative estimate revision over either the last 30 or 60 day-time period, which lends a positive market sentiment, going forward. 

What’s Apple’s Success Formula?

2014 represented a remarkable year for Apple, with its market value touching new highs. The launch of iPhone 6 and 6 Plus in the year not only brought the company on par with major phablet makers like Samsung, HTC and LG, but also set a record of sales of over 10 million units in the very first weekend. As a result, Apple’s market capitalization reached a record $700 billion mark in November, which marks a major milestone in its history.

Apple may not have stuck to the vows of Steve Jobs and made some vivid changes like introducing smaller iPads and joining the phablet bandwagon; however we believe, going by the demand trend, its differentiated efforts have surely paid off.  

With the bigger-than-ever iPhone 6 and 6 Plus, the company has not only forayed into the phablet market, predominately served by Google’s (GOOGL) Android-based phones but also broadened its base in the Far East. Reportedly, the company now accounts for 51% share of the smartphone market in Japan. It has also successfully expanded its market share in South Korea.

China, which has been long dominated by domestic smartphone makers like Xiaomi, also seems to be shifting its preference toward iPhone. This has helped the company gain 12% market share in China. The company is also coming up with new Apple stores in the country to leverage upon the hefty seasonal sale in the upcoming Chinese New Year. Apple believes China is set to become a major contributor to its total revenues, going forward. Hence, the iPhone-maker intends to increase the number of its stores in China, from the current 13 to a whopping 40 over the near term.

Another, major highlight for the company during this quarter was the launch of a mobile software for business customers in collaboration with IBM Corp. (IBM). The deal was primarily aimed at integrating IBM’s big data and analytics capabilities with iPhones and iPads for business customers.

The partnership remains the first of its kind between the two technology giants and is considered a viable gateway to tap the Bring Your Own Device (“BYOD”) trend that has been adopted enthusiastically by enterprises. As a result, we expect the upcoming fiscal first quarter results to shed some light on the latest development with respect to this collaboration and financial synergies pertaining to the deal that occurred or are expected to occur in the coming days.

For the first quarter of fiscal 2015, Apple expects revenues in the range of $63.5 billion to $66.5 billion.

Another Stock to Consider

Apple is not the only firm looking up this earnings season. We also see a likely earnings beat coming from Facebook Inc. (FB), which has an Earnings ESP of +9.09% and a Zacks Rank #3 (Hold).

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