Loading...
 

Apple (AAPL Free Apple Stock Report) shares are heating up, climbing to a fresh 52-week high past the $125 mark, after the tech giant posted solid results for the first quarter of fiscal 2017 (year ends September 30th). After experiencing a rare slowdown last year, growth returned during the December interim, with share net of $3.36 surpassing Wall Street's consensus view and coming in $0.16 ahead of our estimate. Revenues of $78.4 billion were also higher than anticipated, buoyed by a pick-up in smartphone unit shipments and further momentum from the high-margined services business.

During the fiscal first quarter, Apple sold a record number of iPhones (78.3 million), easing investor concerns that the cash-cow smartphone business was headed for a prolonged downturn. As we had hoped, the next-generation iPhone 7, which debuted in September, appears to have set the stage for a powerful smartphone upgrade cycle. In fact, the more expensive 7 Plus model, featuring a larger display and more sophisticated camera, is proving to be a runaway hit, which is bolstering both the top and bottom lines. And long-term prospects for the smartphone franchise in China continue to look very bright, despite some recent sales softness in that important country.

The services segment, meanwhile, including iTunes, iCloud, Apple Pay, and the App Store, continues to grow at a blistering pace, generating $7.2 billion in revenue in the December period (representing an 18% year-over-year advance). The momentum seems apt to persist, too, led by surging Apple Pay transaction volumes. (Apple Pay is the company's mobile payment and digital wallet service.) To this end, management now thinks that services revenue can double over the next four years. This, along with the emerging market opportunities and a likely move into proprietary content (where it would challenge Amazon.com (AMZN) and Netflix (NFLX)), is among the reasons why we believe that there are still many chapters to come in Apple's historic growth story.

In light of the impressive start to the year, we are confident that the company can meet our share-net estimate of $9.25 for all of fiscal 2017. We may revise this figure upward at a later date if Apple's turnaround accelerates further and the company gets more aggressive on the stock-buyback front. Notably, Apple ended the December period with cash assets of about $245 billion on its books. And, if a portion of this cash that is held overseas is returned to the U.S. via a tax holiday, we would expect the pace of buybacks to pick up. We also envision steady increases to the dividend as we head toward decade's end.

All in all, it was a fine quarter for Apple, one that's sure to bring more bulls back to this Dow component. And there's still time for investors to build positions in the stock, as the valuation remains pretty attractive, especially when factoring in the company's huge cash hoard.

About the Company:Apple Inc. is one of the world’s largest makers of PCs and peripheral and consumer products, such as the iPod digital music player, the iPad tablet, the iPhone smartphone, and the Apple Watch, for sale primarily to the business, creative, education, government, and consumer markets. It also sells operating systems, utilities, languages, developer tools, and database software.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.