Is Apple Stock a Buy After Beating Earnings Estimates?

Although iPhone sales were slightly down, they were better that expected.

Apple (NASDAQ:AAPL), stock rose Friday morning, as investors bought stock in the iPhone maker following its solid earnings that exceeded estimates.

The numbers were good, as revenue increased 5% over the previous year to $85.8 Billion — a record high for the third quarter of fiscal 2008 ended June 30. Analysts had predicted $84.4 billion of revenue.

Net income increased by 8%, to $21.5 billion or $1.40 a share. This was also higher than the $1.35 per share estimate.

There were both concerns and surprises in the numbers. Investors are asking: Is Apple stock worth buying after Q3 earnings results?

iPhone sales down

Apple’s Q3 fiscal earnings revealed that iPhone sales were down compared to last year. Apple’s largest revenue generator is the iPhone, which generated $39.3 billion of revenue in the third quarter. This was a better than expected result, but it was down by 1% compared to the same quarter last year.

iPhone sales have lagged, falling by about 10% in the last year. The company’s expectations for the June quarter were in line with the actual results. It had expected a low-single digit revenue increase.

The reasons for lower sales can be varied, from the economy to cost to the absence of anything new that would warrant an upgrade.

Apple CEO Tim Cook revealed all the new features of the iOS 18 operating system, as well as the iPhone 16 at the Worldwide Developers Conference held in June. Both products will be released this fall.

Cook said that the upgrades were “incredible” and included Apple Intelligence – a personal intelligence system which puts private, powerful generative AI models in the core of iPhones, iPads, and Macs.

China sales drop, Services revenue up

The drop in iPhone sales is also due to the decline in sales in China. In the third quarter of 2016, sales in China dropped 7% from last year to $14.7 billion. Apple’s third largest market after the U.S.A. and Europe is concerned by the downward trend.

Cook said on the earnings call that recent price cuts in the region had been effective in boosting iPhone 15 Sales.

Apple’s growth in Services revenue includes revenue from Apple TV and iTunes, as well as revenue from apps and other subscriptions.

Apple’s Services revenue reached a record of $24.2 billion, an increase of 14% over the previous year. Apple’s Services segment has grown, and now accounts for 28% of its total sales. This is an increase from 25% a year ago, and 23% a quarter ago. The Q3 Services results were better than the analysts’ predictions.

Should you buy Apple stock?

Apple does not usually provide quantitative guidance but does occasionally give estimates during earnings calls with analysts. On the Q3 earnings conference, officials stated that they expect similar revenue growth both overall and in Services.

The new iPhone 16 with Apple Intelligence AI upgrades and other features will be released towards the end of the third quarter, in mid-September. Investors will be closely watching to see if it is this product that can help iPhone sales pick up again.

Apple stock has risen by about 16% in the past year, including a gain of 2% on Friday. Analysts have given Apple stock moderate price target increases following earnings, based on the earnings beating and perhaps an increase after the new iPhone or operating system launch.

It has a median target price of $222 per share. This is actually lower than its current $223. I do believe that the median price target will increase slightly due to this week’s upgrades.

Apple stock trades at 34 times earnings – a slight increase from 31 at the beginning of the year. I still think that the valuation is a little too high. With no catalyst likely until September and a volatile stock market that appears to be in a correction mode for overpriced tech stocks, it may be prudent to monitor Apple stock up until the iPhone launch to look for a better price to buy.

This site is intended for entertainment only and does NOT offer financial advice.

Read more

Here is a link to the article