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Apple (AAPL) Up 7.6% Since Earnings Report: Can It Continue?

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It has been more than a month since the last earnings report for Apple Inc. (AAPL - Free Report) . Shares have added about 7.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Apple Q3 Earnings & Revenues Beat Estimates

Apple reported spectacular results for third-quarter fiscal 2017, driven by the impressive Service segment performance. iPhone sales were also steady in the quarter.

Earnings of $1.67 per share and revenues of $45.4 billion surpassed the Zacks Consensus Estimate of $1.57 and $44.7 billion, respectively. On a year-over-year basis, earnings grew 17.6% and revenues increased 7.2%.

Total iPhone unit sales came in at about 41 million, up 2% year over year. Revenues from iPhone grew 3% from the year-ago quarter to $24.8 billion (54.7% of total revenue).

Services revenues – including revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services – surged 22% year over year to nearly $7.3 billion. App Store sales were a big contributor. The company remarked that it is now the size of a Fortune 100 company, much earlier than the company expected.  Across the segment, the number of paid subscribers grew 20 million to a total of 185 million in the last three months.

Apple sold 11.4 million iPads in the quarter, up 15% year over year. Revenues of $5 billion were up 2% from the prior-year quarter.

Apple Mac unit sales were up 1% year over year to approximately 4.3 million, while revenues grew 7% from the prior-year quarter to $5.6 billion.

Other products – including revenues from Apple TV, Apple Watch, Beats products, iPod, and Apple-branded and third-party accessories – increased 23% year over year to over $2.7 billion.

Geographical Performance

Demand for Apple’s products improved across most of the geographical regions except greater China. As much as 61% of sales were from the International markets.

The Americas (the biggest market for Apple) generated revenues of approximately $20.4 billion in the quarter, up 13% year over year.

Europe generated nearly $10.7 billion in revenues, up 11% on a year-over-year basis.

Revenues from Japan rose 3% year over year to $3.6 billion while the rest of Asia Pacific generated revenues of $2.7 billion, up 15% year over year.

Owing to persistent macroeconomic weakness, Apple revenues declined around 10% year over year in the Greater China region to $8 billion.

Margins

Gross margin was 38.5%, an increase of 50 basis points (bps) from the year-ago quarter.

Operating expenses increased 12% year over year to $6.7 billion due to higher research & development, selling, general and administrative expenses. As a result, operating margin dropped 20 bps from the year-ago quarter to 23.7%.

Balance Sheet and Cash Flow

Apple’s cash and cash equivalents (and short-term marketable securities) were $76.8 billion at the end of the quarter while long-term debt was $89.9 billion.

For the nine months ended on Jul 1, 2017, cash generated from operating activities was $47.9 billion.

Apple returned about $11.7 billion this quarter through dividends and share repurchases. The company has returned $222.9 million to shareholders out of its $300 billion capital-return program.

Apple also declared quarterly dividend of $0.63 per share, payable on Aug 17, 2017 to shareholders of record as of Aug 14.

Guidance

For fourth-quarter fiscal 2017, the company forecasts revenues in a range of $49–$52 billion compared with $46.9 billion reported in the year-ago quarter when it released iPhone 7 and 7 Plus.

Gross margin is expected within 37.5–38%, while operating expenses are projected within $6.7–$6.8 billion. Other income/ (expense) are likely to be $500 million, while tax rate is expected to be 25.5%.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

Apple Inc. Price and Consensus

 

Apple Inc. Price and Consensus | Apple Inc. Quote

VGM Scores

At this time, Apple's stock has a subpar Growth Score of D, while it is doing a bit better on the momentum front with B. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall,the stocks has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable for value and momentum based on our styles scores.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.




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