- Analysts give Apple a moderate to strong BUY rating
- Earnings consistently exceed estimate and often range
- New revenue model focused on higher priced services
- Apple hopes keeping iPhone prices lower will boost sales
- Apple has a better long-term outlook than its peers
In the last month, the value of the shares of Apple Inc. stock (NASDAQ: AAPL) is up nearly 10%, currently at $150.06 per share. This value sits near the median of not only the most recent 12-month price target range ($122.00 to $200.00) but also the stock’s overall 52-week range ($129.04 to $182.94). Going forward, analysts evaluating Apple’s 12-month price target have rated the stock a MODERATE BUY ratingoffering a consensus price target of $180.00.
Earnings consistently exceeded expectations
Apple Inc. has a current valuation of $2.09 earnings per share (EPS) on $127.5 billion in sales. This is already nearly double the stock’s reported EPS on Oct. 27.the earnings call: at a value of $1.29, which beat the estimate by $0.02. Their next reporting date is scheduled for January 26, which should give them plenty of time to move on.
For the past four quarters, Apple Inc. earnings forecast has consistently outperformed the consensus, with Q1 2022 outperforming the entire range as well. A quick look at sales for the quarter suggests the same, as the $123.9 billion in sales they made during the first quarter of 2022 easily beat the consensus estimate of $119.0 billion. That said, quarterly sales followed a similar trend of consistent estimates for the most recent four quarters.
On an annual basis, the trend is also much the same: actual earnings consistently exceed the consensus estimate. Sometimes the profits just overshoot the target by a bit, and sometimes they overshoot the range altogether. What really matters, here, is that the price target has risen from $2.92 in 2019 to $6.10 this year. In terms of annual sales, the consensus estimate rose from $259.1 billion in 2019 to $366.2 billion this year; and exceeded the consensus estimate every year except 2021.
Apple hopes keeping iPhone prices low will boost sales
Apple has already started to raise the prices of some of its services, but fortunately, it has kept the same prices for the iPhone; for now. And this comes at a time when the tech giant is expected to post the lowest gross margin on iPhone sales in four years. This makes expanding the gross profit of its services sector ever more important.
Indeed, this is crucial as phone prices, industry-wide, continue to rise. Of course, much of the price increases reflect the quality of the devices and the capabilities of the technology, but raw material costs increased by at least 20% (between iPhone 13 Pro Max and iPhone 14 Pro Max) . In total, the cost of the components to make the iPhone represents about 46% of its selling price this year.
Yes, that inflation is shocking – and the reason it’s so shocking, here, is that Apple has chosen NOT to pass those price increases on to the consumer. This means, on the one hand, that the iPhone is more attractive than other phone models on the market, whose manufacturers may have raised prices to keep pace with inflation.
It’s a significantly brave move for a company that relied on the iPhone for 52% of total revenue last year. Yet, Mac outperformed last year, with revenue up nearly 13% in the fiscal fourth quarter. Combined with iPhone sales, hardware revenue represented 81.3% of fiscal fourth quarter revenue. That’s actually down from 81.6% the previous quarter.
Strong valuation and momentum keep Apple competitive
Because Apple Inc is a unique technology company that develops both hardware and software, its competition is extensive. That said, AAPL performs comparable to companies like Microsoft and Dell, and perhaps slightly better than the electronic industry, computer sector and NASDAQ stock market, in general. Apple is also outperforming the entire S&P 500, which is only 7% during the same trading period.
At current share value, AAPL sits in the 40% of its 52-week range; Microsoft Co.NASDAQ: MSFT) and Dell Technologies are in the lower third of their ranges.
However, both Microsoft and Dell (NYSE: DELL) stocks have advantages, on average, about twice that of AAPL. Apple’s price-to-sales ratio (6.25) may be better than Microsoft’s, but Dell is hard to beat with a P/S of 0.28. Apple’s price-earnings ratio (24.66) is fair and almost identical to Microsoft’s, but Dell wins again with a somewhat unbelievable P/E of 5.66.
Dell again outperforms the group in terms of return on capital (RoE). At 305.1%, Dell’s RoE is easily double that of Apple, which is almost triple that of Microsoft. However, Apple has the best return on assets (RoA), at 28.03%. Dell is actually the lowest of the three, at 5.64%.
However, of the three, Microsoft has the best projected earnings growth, at 13.50%, as well as the lowest beta value (0.97). In fact, MSFT is the only stock with negative volatility. AAPL still has fair projected earnings growth of 8.10% with a beta of 1.25.
But after all is said and done, analysts give all three stocks a BUY rating; and, with the volatility of AAPL, it can sometimes be considered a MODERATE or even STRONG buy.
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