Let’s Look at Apple’s Profit Estimates Now That the iPhone 7 Launched

Stock (Symbol)

Apple (AAPL)

Stock Price


Data is as of
September 19, 2016
Expected to Report
Oct 25 – 31
Company Description
apple_ipad_2up_hometimes2Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company’s products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also sells and delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. It sells its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added re-sellers. Source: Thomson Financial
Sharek’s Take
David SharekApple’s (AAPL) iPhone 7 has launched, and the stock is rallying to new highs. Still, this new product doesn’t look like the catalyst you would think it would be. Here’s how AAPL’s Annual Profit Estimates have trended for the last 4 qtrs:

2016 $9.85, $9.13, $8.27, and now $8.26
2017 $10.80, $10.05, $9.15, and now $8.93
2018 $11.74, $11.02, $9.95, and now $10.11

Apple’s profit estimates have been sliding all year, and the best thing I can say now they have stabilized. Still, the company made $9.22 in 2015 so I won’t be impressed until the company makes more than that — which looks like 2018. On the product itself, I don’t like the idea of wireless earbuds and that would keep me away from buying an iPhone 7 (I use HTC now). Annual profits are expected to fall 10% this fiscal year ending September 30th, then rise just 8% next year. That’s not impressive. The stock currently sells for 13 times earnings, which I think is pretty fair, but I have a Fair Value of 12x earnings on the stock and think it’s worth $107. I feel this run higher is all about hype.

One Year Chart
aapl_2016_q3The stock chart has turned bullish, and includes a recent breakout past $110 a share. Last qtr AAPL made $1.42 which beat the street by just 3 cents. These estimates had fallen by 39 cents and 23 cents the prior two qtrs. Profits declined 23% as sales fell 15%. Every geographic market had negative growth including China -33%, Asia-Pacific -20%, Americas -11%, and Europe -7. Estimates call for -16%, -4%, 13% and 22% growth the next 4 qtrs. That 22% growth number looks good due to easy comparisons, and the estimate of $1.73 would come in less than the $1.85 the company made two years earlier.
Fair Value
aapl_2016_q3_phThis stock had a low P/E when profits were growing! Do you expect a better valuation now that profits are falling? My Fair Value is 12x earnings. Since AAPL’s fiscal year end is September 30th, I’m looking ahead to 2017. Thus my 2017 Fair Value is $107, which is less than the stock is selling for now.
Bottom Line
aapl_2016_q3_10yrLooking at the charts Apple has turned the corner and will probably be headed higher. That’s good news for the shareholders and the stock market in general. But the iPhone 7 launch doesn’t seem to be a catalyst that can propel the company’s profit growth. When I look at the fundamentals, nothing looks good to me. I’m staying on the sidelines with this stock, and really just continue coverage for entertainment purposes.
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