Apple Set to Increase Profit Growth With New iPhone


Stock (Symbol)

Apple (AAPL)

Stock Price


Data is as of
August 8, 2017
Expected to Report
Oct 23
Company Description
Apple’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. Source: Thomson Financial
Sharek’s Take
David SharekApple’s (AAPL) new iPhone is expected to be introduced later this month, and that is expected to being a new wave of profit growth to the company. Qtrly Estimates are for growth of 13%, 14%, 24% and 22% the next 4 qtrs. With a P/E of 15, these share could move higher, accelerating growth combined with backing from some of Wall Street’s heavy hitters should push the stock to $180 or beyond in the coming years. Warren Buffett for one has been buying shares, and feels the P/E should be in the 20s because consumer stocks have P/Es in the low-20s. I disagree as food stocks can deliver more dependable profit growth (AAPL’s profits fell in 2016). Bull’s point to rising service revenue as a reason the stock’s multiple should be higher. Service revenue was up 22% last qtr and is now 16% of revenue, up from 14% a year ago. Overall, this stock is getting a lot of positive inflows, and with 20% growth on the horizon I feel the momentum should continue. Investors are flocking into S&P 500 and NASDAQ funds/ETFs right now creating demand. AAPL is a safe stock, has a 2% yield, management buys back billions in shares and the new iPhone 8 should prove to be a catalyst going forward. iPhone inventory is at it’s lowest levels in 2.5 years. Plus, foreign exchange costs should lighten up in coming qtrs as well. Today I will purchase AAPL in the Growth Portfolio and Conservative Growth Portfolio.
One Year Chart
This stock really took off when profit growth was meh and the P/E was around 10. But even after a 50% or so rise it looks more attractive to me now than a year ago. Last qtr sales increased 7% and profits rose 18%, and beat the 11% estimate. Profit estimates increased a little after the earnings call. Qtrly profit growth Estimates call for 13%, 14%, 24% and 22% growth the next 4 qtrs as the NEW iPhone could spur demand. The Est. LTG of 11% is decent when you consider the stock pays a 2% dividend. The P/E of 15 is down from 17 last qtr as AAPL has its fiscal year end September 30th and I’m looking ahead to next year.
Fair Value
My Fair Value is 16x earnings or $173 this coming year and $181 in 2019. Now the P/E could rise to 20 which would give the stock more upside, but let’s see what happens in the coming qtrs. This stock has historically carried a low multiple.
Bottom Line
Apple has been a tough stock to handle the past five years, as at times it had a mind of its own. More recently profit growth has been hard to com, and that says to me this is a different company. But Apple has reinvented itself before and with service revenue shooting higher perhaps this will become a stock with a higher P/E?  I will add AAPL to the Growth Portfolio and Conservative Growth Portfolio but the fundamentals aren’t good enough for the Aggressive Growth Portfolio.
 Power Rankings
Growth Stock Portfolio

23 of 33

Aggressive Growth Portfolio


Conservative Stock Portfolio

4 of 32


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