Analysts' Choice: Apple Conquers -- One Pocket At A Time

9/21/2015


  Recent Price
$116
  Dividend
$2.08
  Yield
1.8%
  P/E Ratio
13
  Shares (millions)
5,773
  Long-Term Debt As % Of Capital
27%
  52-Week Price Range
$134.54 - $92.00

About 200 years ago, John Adams said, "You'll never be alone with a poet in your pocket." Today, many people could say the same thing about Apple's ($116; AAPL) iPhone.

The ubiquitous device delivered 50% sales growth in the 12 months ended June while generating 65% of Apple's revenue. In each of the last three quarters, the iPhone has taken more than 90% of the smartphone industry's profits, estimates researcher Canaccord Genuity.

Apple's total revenue for the 12 months ending June trails only Wal-Mart Stores ($65; WMT) and Exxon Mobil ($74; XOM) in the S&P 500 Index. And neither Wal-Mart nor Exxon grew sales more than 1%, while Apple's sales jumped 26% — good for 20th among S&P 500 companies.

At some point, Apple will face the risk of becoming so big that even successful product launches fail to move the needle. Those concerns, along with fresh doubts about growth in China, helped drag the stock down 6% in the 30 days before Apple's Sept. 9 media event. Not since 2007 — the year of the very first iPhone — had shares declined in the month leading up to the annual iPhone announcement.

Once unveiled, Apple's refreshed products generated little investor enthusiasm. The stock, which sits 13% below its all-time high set in April, is a Focus List Buy and a Long-Term Buy.

iPhone zoned for more growth

The Apple Watch has seized a large slice of the budding wearables market. The freshly unveiled iPad Pro tablet could improve Apple's footing with businesses. Apple Pay and Apple TV seem destined to help the company dredge new revenue channels.

But some analysts see Apple straining to match recent iPhone sales in the coming year. After all, Apple CEO Tim Cook predicted "the mother of all upgrades" when he introduced the iPhone 6 and 6 Plus in September 2014. Improvements in the latest iPhone models are more modest — a sharper camera, faster processor, and screen that responds one way to a light tap and differently to a hard push.

A new iPhone-leasing program could offer upside to analysts' expectations. U.S. iPhone users upgrade to new models an average of every 26 months, up from 18 months in 2010. Apple will now offer the option to receive a new, unlocked device each year by paying about $32 a month over a 24-month period. The program could shorten the iPhone replacement cycle and provide Apple with a stable stream of recurring revenue.

Initial demand looks strong, with Apple saying advance orders for its new iPhone models are on pace to top 2014 levels, which totaled about 10 million units in the first three days of availability. Suppliers expect Apple to ship 115 million to 130 million iPhones in the second half of calendar 2015, up from 113.7 million units sold in the second half of 2014.

Apple expects sales to rise 16% to 21% in the September quarter. The consensus projects 10% higher per-share profits over the next 12 months, yet the shares trade at less than 13 times estimated earnings — fewer than 30 other S&P 500 stocks enjoy both higher growth targets and lower valuations than Apple. An annual report for Apple Inc. can be obtained at 1 Infinite Loop, Cupertino, CA 95014; (408) 996-1010; www.apple.com.

APPLE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '15
1.85
vs.
1.28
33%
134.54
-
123.10
17 - 15
Mar '15
2.33
vs.
1.66
27%
133.60
-
104.63
18 - 14
Dec '14
3.06
vs.
2.07
30%
119.75
-
95.18
19 - 15
Sep '14
1.42
vs.
1.18
12%
103.74
-
92.57
17 - 15
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
182.80
6.45
1.81
103.74
-
68.33
16 - 11
2013
170.91
5.68
1.63
96.68
-
55.01
17 - 10
2012
156.51
6.31
0.38
100.72
-
50.61
16 - 8
2011
108.25
3.95
0.00
60.41
-
39.68
15 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
89
86
98
87
80
48

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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