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Apple (AAPL) Stock Remains A Buy Even At New High

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Apple (AAPL - Free Report) has seen its stock price soar over 10% since it reported impressive quarterly financial results at the end of July. The iPhone giant’s performance has it trading over $200 per share for the first time in company history. Yet, Apple stock still looks like a buy even at its new all-time high for an array of reasons.

Overview

Apple’s fiscal third-quarter revenues climbed by 17% to reach $53.27 billion, topping our Zacks Consensus Estimate. Meanwhile, the firm’s adjusted Q3 earnings skyrocketed 40% to $2.34 per share, also coming in above our estimate. Apple’s top and bottom line growth was insane for a company of its size and age.

Plus, total iPhone revenue jumped by 20% to $29.906 billion, which is great news for investors since the smartphone is still by far its biggest revenue driver. It is worth noting that iPhone unit sales rose by only 0.7% to 41.300 million, which illuminates how much the high-priced iPhone X has helped Apple. However, this contrast is why Apple has pushed so heavily into new growth areas.

Apple’s Services business, which includes AppleCare, Apple Music, Apple Pay, and others, saw its quarterly revenues soar 31% from $7.266 billion to reach $9.548 billion. More specifically, Apple Pay was used for more than 1 billion transactions, which is triple the amount in the year-ago quarter. The firm boasted that its payment platform completed more total transactions than Square (SQ - Free Report) and more mobile transactions than PayPal (PYPL - Free Report) .

Apple Music has grown in popularity rather quickly and is already nearly neck and neck with streaming power Spotify (SPOT - Free Report) in the U.S. The firm’s “Other Products” unit also soared 37% to reach $3.74 billion, making it Apple’s fastest growing unit for the fifth quarter in a row. Apple’s less-talked-about growth segment includes sales from AirPods, Apple TV, Apple Watch, Beats products, and HomePod.

Looking ahead, CEO Tim Cook said on Apple’s Q3 earnings call that the firm is on target to reach its goal of doubling its 2016 Services revenue by 2020. Apple’s goal would see the company’s Services unit soar from roughly $24.4 billion in fiscal 2016 to nearly $50 billion in just four years.

Price Movement

Shares of Apple have climbed over 94% during the last two years, which crushes the S&P 500’s 32% and its industry’s 55% growth. Over the 12 months, Apple stock is up roughly 35%, including some rather massive turbulence. AAPL stock has surged nearly 29% over the last six months.

 

Valuation

Moving on, AAPL stock is currently trading at 16.1X forward 12-month Zacks Consensus EPS estimates, which represents a discount compared to the S&P’s 17.4X. Apple is trading at a slight premium compared to its industry’s 14.9X, but AAPL has traded as high as 17.2X over the last year with a one-year median of 15.1X.

Investors will see that Apple is currently trading near its five-year high. Yet, based on its massive stock price movement and growth outlook, Apple's valuation picture is hardly stretched at the moment.

 

Outlook

Apple’s fiscal fourth-quarter revenues are projected to climb by nearly 16% to hit $60.98 billion, based on our current Zacks Consensus Estimate. The firm’s full-year revenues are expected to expand by over 15% from $229.23 billion to a mind-blowing $263.68 billion.

At the other end of the income statement, Apple is expected to see its adjusted Q4 earnings surge by roughly 33% to hit $2.75 per share. For fiscal 2018, Apple’s earnings are projected to climb by roughly 27% to hit $11.68 per share.

Bottom Line

Apple has earned nine earnings estimate revisions for Q4 over the last 30 days, with 100% agreement to the upside. The company has also received 10 full-year and nine fiscal 2019 upward earnings revisions during this same stretch, against zero downward changes. Therefore, analyst sentiment about Apple’s earnings growth picture has grown more positive recently, which helps Apple earn its Zacks Rank #2 (Buy).

Plus, investors should remember that Apple has prepared to make a streaming TV splash sometime in the next few years, which will see the company try to take on Netflix (NFLX - Free Report) , Amazon (AMZN - Free Report) , Hulu, and soon enough Disney (DIS - Free Report) .

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