Could This Prove Apple Stock Bears Wrong Again?
Apple Inc. (NASDAQ:AAPL) stock’s downturn last year needs little introduction. When the largest company in the world by market cap drops by nearly 30%, everyone gets worried. Even after its recovery over the last two months, Apple stock is still down more than 20% compared to its high from last July.
The question now is this: will Apple’s earnings be able to pump the stock back up?
Well, first of all, let’s admit that as a hardware device maker, Apple is not really in the hottest industry these days. Investors today seem to be more into companies that report numbers on monthly active users (MAUs), gross merchandise volume (GMV), or subscriber base. Old-fashioned device sales just don’t cut it anymore.
Take a look around and you’ll see what I mean. Apple stock is not the only victim of the bearish sentiment towards hardware companies. GoPro Inc (NASDAQ:GPRO) and Fitbit Inc (NYSE:FIT) were both leaders in their respective industries, action cameras and fitness trackers. Yet GPRO stock and FIT stock have both plunged big-time since last summer.
Apple, despite having presence in multiple segments, still makes most of its money from its core product: the “iPhone.” Last time the company reported, iPhone sales made up more than 68% of the company’s total revenue. (Source: “Q1 2015 Unaudited Summary Data,” Apple Inc., January 26, 2016.)
What really worries investors is that iPhone sales only increased one percent year-over-year. That makes the market skeptical about the company’s growth potential. The sentiment is reflected in analysts’ estimates for Apple’s March quarter earnings.
For the reporting quarter, analysts expect Apple to deliver $2.00 in earnings per share (EPS). That would represent a 14.2% year-over-year decrease. Revenue is expected to drop even more—by more than 10% to $51.97 billion. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed April 22, 2016.)
Wall Street is not really that optimistic about Apple’s future business, either. For the June quarter, the average estimate for Apple’s revenue is $47.24 billion, which is 4.6% lower compared to the year-ago period. For fiscal year 2016, analysts are expecting a three-percent revenue decline.
Still, that doesn’t change the fact that Apple has been beating earnings estimates left right and center. In the past four fiscal quarters, the company managed to beat Wall Street’s EPS estimates every single time.
Note that the same thing that brought the stock down can also send it back up. Apple is going to give a major update to its flagship product with the “iPhone 7” this September. The last major update was the “iPhone 6” release in September of 2014. Following that update, Apple stock shot through the roof. This time, the product upgrade could be a huge catalyst again.
And let’s not forget that among tech companies, Apple is doing a great job in terms of returning value to shareholders. It pays dividends with a nearly two-percent yield and has been buying back its shares at an impressive pace.
In the last fiscal quarter alone, Apple returned more than $9.0 billion to shareholders through dividends and buybacks. Last year, the company expanded its capital return program to $200 billion, expecting completion by the end of March 2017. So far, Apple has completed $153 billion of its $200-billion program. (Source: “Apple Reports Record First Quarter Results,” Apple Inc., January 26, 2016.)
Note that Apple has a huge cash pile—more than $215 billion to be exact. Although most of that pile is stored overseas, Apple’s cash reserve means it has the freedom to issue more dividends and buybacks. Once the company completes its current share repurchase program, it could launch another one. The announcement could come as early as this year.
The Bottom Line on AAPL Stock
Apple has rescheduled its earnings announcement to Tuesday, April 26 at 5:00 p.m. Eastern Standard Time (EST). Despite all of its strengths, concerns surrounding the company’s hardware business could continue to weigh on AAPL stock—even if it delivers another earnings beat.