Apple: Buy, Hold, or Sell?

Apple (AAPL) recently announced fourth quarter ended September 26, 2015 total revenue of $51.5 billion, an increase of 22.3 percent year-over-year from $42.1 billion during the same period last year and slightly above the key analyst’s sales estimate of $51 billion.  The company has also provided revenue guidance for the first quarter of fiscal year 2016 in the range of $75.5 billion to $77.5 billion.

Apple declared fourth quarter of 2015 net income of $11.1 billion or $1.96 of diluted earnings per share, up 31.4 percent year-over-year from net income of $8.5 billion or $1.42 of diluted earnings per share in the fourth quarter of 2014 and also somewhat above $1.88 a share of net earnings key analysts forecast.

The key technology company reported continued year-over-year growth in its top and bottom lines primarily due to impressive fourth quarter iPhone sales, greater reach of Apple Watch, significant Mac sales and enhanced top line contribution from services.

A look at the growth prospects

The top executive at Apple is highly confident about the latest solid sales forecast for the successive first quarter of fiscal 2016, primarily driven by the rising trend of customers increasingly upgrading and switching to the newest iPhone models from the older Android handsets and robust ongoing sales growth in China.

Walt Piecyk, a key analyst at BTIG LLC is quite positive about the longer term growth prospects of Apple and mainly due to robust iPhone sales dominating the company results, which is believed to continue in the near future as well.
However, the analyst is quite concerned about this growth might be ending.

The expanding iPhone sales are believed to continue to add significant top line contribution and thus drive impressive overall company growth. The expanding pockets of customers are increasing their affordability to switch from the traditional Android smartphones to the latest and highly advanced iPhones, driving notable top line growth for the company.

Beating a wider deceleration in the international smartphone market, Apple sold a significant 48 million handsets during the previous quarter, an increase of 22 percent from the same period last year. The last quarter sales for Apple surpassed the combined quarterly sales figure for Facebook Inc. and Microsoft Corp. Apple strategically launched latest models of iPhone 6S and 6S Plus on Sept. 25 with improvised 3D Touch screens, faster processor and an advanced camera which is expected to generate notable sales for several years to come.

The key investment analysts that follow Apple Inc. are estimating the company to expand bottom line at an average yearly rate of about 13.03% over a long 5 year term. For this year, analysts are estimating earnings to grow by 7.06% compared to last year and earnings growth for next year are estimated to be approximately 7.72%, compared to the current year’s estimated earnings. Apple Inc. stock is also expected to become more affordable with forecasted P/E ratios for 2016 and 2017 of 11.96 and 11.10 respectively.

Apple is expected to continue with this outperformance in a short-term and over a longer term, particularly allowed by the ever expanding iPhone sales and rising customer traction for Apple’s other innovative products such as, iWatch, iPad and Mac PCs.

The technology major strategically returned $17 billion to its shareholders for the quarter through planned share buyback program and Apple has currently concluded more than $143 billion of its strategic $200 billion share repurchase program.

Apple is keenly focused on returning a majority of the invested capital to its key stakeholders in form of dividends, through planned share buyback programs and in line with its continued commitment to deliver improved shareholder returns.


Overall, the investors are advised to “Hold” their position in Apple Inc., considering the stock’s significant growth potential with expanding iPhone and other innovative product sales. The trailing P/E and forward P/E ratios of 12.83 and 10.96 respectively indicate logical company valuations and somewhat better than the industry’s average P/E of 19.19. The PEG ratio of 0.78 indicates healthy company growth and comparable to the industry’s growth average of 1.08. The profit margin of 22.85% seems impressive. However, Apple needs to optimize its debt-burdened balance sheet with significant total debt of $64.48 billion against weaker total cash position of $42.00 billion only, restricting the company to make future growth investments.
Published on Dec 8, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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