Tech giant Apple Inc. (AAPL:NASDAQ), the world's most valuable company with a US$2.95 trillion market cap, met some Wall Street expectations with its recent fourth-quarter results but missed others. However, some analysts agree there is still room to grow with the stock.
AAPL earlier this month posted revenue of US$89.5 billion for the fourth quarter ending Sept. 30, down 1% over the same quarter in 2022, and quarterly earnings per diluted share of US$1.46, up 13% YoY.
While Apple's revenue has slipped in the last few quarters compared with 2022, its gross margins are expanding, Bernstein analyst Toni Sacconaghi wrote, according to Barrons.
"Fundamentally, it has been an improvement in product gross margins, which have grown an average of ~170 bps per year since 2020, vs. declining ~140 bps per year between 2015 and 2020," wrote Sacconaghi about basis points, or hundredths of a percentage point.
The analyst has a Market Perform rating on Apple's stock with a target of US$195 per share.
The company's Q4 FY2023 iPhone revenue went up 3% to US$43.8 billion YoY, which is in line with Wall Street predictions.
The Catalyst: Services Growth Beats Estimates
While the revenue for some of Apple's product categories declined — wearables were down 3%, iPad revenue was down 10%, and Mac revenue was down 33% — some analysts pointed to the strong performance of the company's Services segment as a bright spot. The division includes the App Store, AppleCare, iCloud data storage, Apple Pay, Apple Music, and Apple TV+.
"Fundamentally, it has been an improvement in product gross margins, which have grown an average of ~170 bps per year since 2020, vs. declining ~140 bps per year between 2015 and 2020," wrote Sacconaghi.
That segment was up 16% YoY to US$22.3 billion and beat analysts' estimates.
"Underlying iPhone and Services growth looks relatively healthy in the holiday quarter and generally in line with whisper numbers," wrote Wedbush analyst Dan Ives, according to Benzinga. Ives rated the stock Outperform with a price target of US$240 per share.
Goldman Sachs analyst Michael Ng, who has a Buy rating with a price target of US$227 per share on AAPL, agreed.
"iPhone installed base continues to compound, with the iPhone active installed base reaching a record F4Q23 and benefitting from a record number of switchers in F2023 driven in part by expansion into emerging markets and a growing installed base in Apple Watch, Mac, and iPad," Ng said.
Personal Computer Pioneer
Apple started in 1976, and its Apple II became one of the first mass-produced microcomputers. Its Macintosh computer, released in 1984, pioneered a graphical-user interface that directly influenced how we use our computers even now.
Goldman Sachs analyst Michael Ng, who has a Buy rating with a price target of US$227 per share on AAPL, agreed.
The company's software now provides a connected ecosystem across several platforms – Macs, iPhones, iPads, Apple Watches, and Apple TVs. In 2018, it became the first publicly traded U.S. company to be valued at more than US$1 trillion, and its market capitalization rose to over US$3 trillion earlier this year. Its other products include AirPods wireless headphones and HomePod Mini smart speakers.
This year, Apple introduced its much-anticipated new virtual reality headset, Vision Pro, which is scheduled for availability early next year at US$3,499.
"Apple is pleased to report a September quarter revenue record for iPhone and an all-time revenue record in Services," Apple Chief Executive Office Tim Cook said on the release of the figures. "We now have our strongest lineup of products ever heading into the holiday season, including the iPhone 15 lineup and our first carbon-neutral Apple Watch models, a major milestone in our efforts to make all Apple products carbon neutral by 2030."
China Fears 'Overblown,' Analysts Say
Some analysts also agreed that fears of Apple losing iPhone market share in China could be overstated. Oppenheimer analyst Martin Yang rates Apple Outperform with a US$200 per share price target.
"Fears of iPhone's share loss in Mainland China to Huawei seem overblown when iPhone likely gained share in F4Q," Yang wrote, according to Benzinga. "We expect investor concerns over China share loss to mostly dissolve heading into FY24."
Yang said Apple's financial results were solid given a "very tough macro backdrop," Barrons reported.
Oppenheimer analyst Martin Yang rates Apple Outperform with a US$200 per share price target.
"We continue to favor its long-term growth potential and unchallenged market positioning," Yang wrote.
Wedbush analyst Ives said iPhone 15 demand in China was a highlight of Apple's results.
"While overall, China revenues missed the Street in the September quarter, this was due to softer Mac/iPad sales, which marks the underlying growth the Street is truly focused on," Ives said.
Apple's numbers should cause analysts to "breathe a sea of relief," he said.
"Underlying iPhone and Services growth looks relatively healthy in the holiday quarter and generally in line with whisper numbers," he said, adding that iPhone China demand concerns were "a great fictional story by the bears."
Heading Into the Holiday Season
Bernstein's Sacconaghi said, Apple's "guided below consensus revenues for the December quarter, (are) largely driven by a weak iPhone cycle. The December quarter typically sets the tone for the year."
The analyst said he sees the stock's quality as holding, but encourages investors to "'be like Buffett' and buy on dips."
Raymond James analyst Srini Pajjuri agreed with Sacconaghi that Apple is seeing higher margins, the China numbers were encouraging.
"iPhone was in line and more importantly, China was an area of strength, which should help allay recent slowdown concerns," Pajjuri said.
Pajjuri rates APPL Outperform with a price target of US$200 to US$195.
Apple recently filled in its holiday lineup with the new iPhone 15 and Apple Watch Series 9 smartwatches, plus new MacBook Pro and iMac computers that run on the company's new M3 family of chips, which are based on a smaller and more efficient 3-nanometer process.
Services: Next Big Growth Driver?
Writing for Investor's Business Daily, Patrick Seitz also noted that the Services division may be
AAPL's next big growth driver.
"On Oct. 25, Apple raised prices for multiple subscription services, including Apple TV+ and its Apple One bundles," Seitz wrote.
Investor's Business Daily gave AAPL a Composite Rating of 90 out of 99. The rating combines "five separate proprietary ratings of fundamental and technical performance," with the best growth stocks having a rating of 90 or better. It also gave the stock a Relative Strength Rating, looking at how the stock performs against others in the last year, of 90 out of 99.
"Wall Street sees the iPhone maker returning to growth in the December quarter," Seitz wrote.
Streetwise Ownership Overview*The company's next earnings report is due in late January and could be a catalyst for the stock, he said.
Ownership and Share Structure
About 54% of Apple is owned by institutions and about 0.06% by insiders, according to Yahoo! Finance. The rest, about 46%, is in retail.
Top shareholders include The Vanguard Group Inc. with 8.32% or 1.32 billion shares, Berkshire Hathaway Inc. with 5.89% or 916 million shares, BlackRock Institutional Trust Co. with 4.32% or 672 million shares, State Street Global Advisors (US) with 3.66% or 569 million shares, and Geode Capital Management LLC with 1.9% or 296 million shares.
Top individual shareholders include Arthur D. Levinson with 0.03% or 4.59 million shares, CEO Cook with 0.02% or 3.28 million shares, Jeffrey E. Williams with 0% 560,000 shares, and former Vice President Al Gore with 0% or 470,000 shares.
Apple's market cap is US$2.95 trillion, with 15.55 billion shares outstanding, 15.54 of them free-floating. It trades in a 52-week range of US$198.23 and US$124.17.
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