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Buy Apple Stock at New Highs Heading into the Holiday Shopping Season?

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Apple (AAPL - Free Report) stock jumped to yet another new high Friday as part of the market’s broader climb, driven by better-than-expected U.S. jobs data. Of course, the iPhone giant is coming off an impressive fourth quarter of fiscal 2019 and its stock is already up nearly 17% in the last month.

Quick Q4 Overview

The past year was rough for Apple in terms of iPhone sales, which remains its largest business unit. In fact, the company’s flagship smartphone sales fell 9% last quarter. This, however, marked an improvement compared to the first three quarters of 2019’s 15% average decline.

Sales in Greater China also fell in 2019, down 15% overall. But Wall Street has remained behind Apple because the downturns came against hard to compared periods—for instance, iPhone sales soared 29% in Q4 2018—and the firm will likely return to growth in those key areas down the road.

Despite disappointing iPhone and Chinese sales, Apple’s overall Q4 sales popped 2% to top our quarterly estimate that called for a slight downturn. Apple posted back-to-back quarters of positive sales expansion to end the year, after its Q2 sales fell 5.1% and Q1 dropped 4.5%.

Apple’s adjusted quarterly earnings climbed 4% to come in at $3.03 per share. This also beat our $2.84 estimate that would have marked a decline from the year-ago period. All said, AAPL’s full-year earnings slipped marginally and revenue dipped 2% from $265.59 billion to $260.17 billion.

 

 

 

 

What’s Next?

Along with Apple’s better-than-projected top and bottom line results, investors narrowed in on the company’s services business, which includes sales from its app store, mobile payments, Spotify (SPOT - Free Report) -challenger Apple Music, and more. The company’s services unit climbed 18% in the quarter and roughly 17% overall to account for 18% of total 2019 revenue, easily the second-largest division behind the iPhone’s 55%.

CEO Tim Cook said on the company’s conference call that Apple is on its way to accomplishing its goal of doubling fiscal 2016’s services revenue during 2020. To do this, Apple has beefed up its services portfolio in recent years and recent months.

Apple rolled a credit card not too long ago with the help of Mastercard (MA - Free Report) and Goldman Sachs Group (GS - Free Report) and a new Apple Arcade video game service. “We now have 450 million paid subscriptions across the services on our platform compared to over 330 million just a year ago, and we are well on our way to our goal of surpassing the 500 million mark during 2020,” CFO Luca Maestri said on the company’s conference call.

Perhaps most importantly, Appel officially launched its streaming TV service on Friday, November 1. Apple TV+, at $4.99 a month, costs far less than Netflix (NFLX - Free Report) , HBO (T - Free Report) , and Amazon (AMZN - Free Report) Prime Video. The company hopes its price point, which makes sense given its small content library, will entice consumers to join as the market become more crowded—Disney (DIS - Free Report) launches its streaming service on November 12 a $6.99/month (also read: Disney Earnings Preview: What's Next for DIS Stock in the Streaming TV Era).

 

 

 

 

Along with services, Apple’s wearable unit stood out, up 54% last quarter, driven by Apple Watch, AirPods, and Beats products. The company just introduced a new version of its popular wireless headphones (AirPods Pro for $249 vs. original $159) ahead of the holiday shopping season.

Meanwhile, Apple Watch has been successful, which is part of the reason why Google (GOOGL - Free Report) just announced that it will buy Fitbit (FIT - Free Report) for approximately $2.1 billion.

Outlook

Looking ahead, executives are confident about both Apple’s short and longer-term future, which includes the new iPhone 11s and its highly anticipated 5G iPhone that is expected to launch in September 2020. “We are very thrilled with what we're seeing in early going on iPhone 11 and iPhone 11 Pro and Pro Max. It's early but the trends look very good,” CEO Time Cook said on the earnings call.

“So I don't want to make a long-range forecast here. We've put our current thinking in the guidance and you can tell from the guidance we are bullish.”

With this in mind, Apple’s Q1 2020 sales are projected to pop 2.2% to $86.18 billion, based on our current Zacks Consensus Estimates. Better yet, Apple’s full-year fiscal 2020 revenue is projected to surge 5.5% to $274.41 billion, which would easily top 2018’s $265.59 billion. Meanwhile, fiscal 2021 is expected to surge another 7.9% higher to $296.19 billion.

At the bottom end of the income statement, AAPL’s adjusted holiday quarter earnings are projected to climb 8.9%, with full-year 2020 expected to jump 10.5%. Then, the tech titan’s FY21 EPS figure is expected to surge another 16%. Investors will also notice that Apple’s fiscal 2021 earnings revision picture has turned far more positive since it posted its quarterly results. 

 

 

 

 

Bottom Line

Apple is currently a Zacks Rank #3 (Hold) that sports an “A" grade for Momentum and a “B” for Growth in our Style Scores system. Shares of AAPL are now up 60% in 2019 and 22% in the past 12 months and hit another new high Friday morning.

AAPL’s valuation picture has become a bit stretched recently, trading at 18.8X forward 12-month Zacks Consensus Earnings estimates. This comes above its three-year median of 15.1X but below its 19.7X high.

In the end, some investors might want to wait for Apple to cool off a bit. However, Cook remains in contact with President Trump and remains confident on the U.S.-China trade war front.

On top of that, U.S. unemployment rests near 50-year lows heading into the holiday shopping season, which the National Retail Federation expects to be strong.

AAPL also pays an annualized dividend of $3.08 per share right now, for a 1.24% yield and returns a ton of value through buybacks. Therefore, Apple stock looks like a strong long-term buy as it continues to prove it is more than an iPhone company.

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