Apple Is Ripe for a Rally -- Ahead of the Tape
July 24 2016 - 12:30PM
Dow Jones News
By Steven Russolillo
Tech investors are a discerning bunch these days -- a harsh
reality that is pressuring Apple Inc. more than it deserves.
In this yield-starved environment, stock investors are attracted
to steady income. This would benefit Apple, except that like other
former highfliers, it has been tossed out by investors. The iPhone
giant's shares have slid 6% this year and 21% over the past 12
months. While some of that is justified as iPhone sales have
slowed, the selloff also looks overdone heading into Tuesday's
earnings report.
Apple at least has a low bar to hurdle. Analysts polled by
FactSet estimate fiscal third-quarter earnings of $1.40 a share,
down 24% from the same period a year ago. That estimate has fallen
from $2.01 in November. Revenue for the period ending in June is
expected to have dropped 15% to $42.1 billion, which would be
Apple's second consecutive quarterly sales decline.
Much of the bearish thesis is due to weakening iPhone sales,
which account for more than half of revenue. The iPad isn't selling
as well as it used to and the jury is out on the Apple Watch. Tech
investors are allergic to anemic growth, which explains why the
tech-heavy Nasdaq has lagged behind the Dow industrials and S&P
500.
Still, Apple has been punished more than enough. The iPhone
slump appears priced in. And while the next iPhone, expected later
this year, likely won't be a significant upgrade, there is optimism
that sales growth will soon bounce back. Analysts forecast iPhone
unit sales will rise 5% for fiscal 2017, which ends next
September.
Apple is the sort of stock that investors love these days. It
plans to spend $250 billion on dividends and buybacks by March
2018, which would boost earnings per share and yield. Already,
Apple's 2.3% dividend yield is well above the 10-year Treasury
yield.
Apple remains wildly profitable, too. Its $10.52 billion profit
in the March quarter easily surpassed combined profits of Alphabet
Inc., Amazon.com Inc. and Facebook Inc.
And its valuation is compelling. Shares fetch 11 times projected
earnings, a 34% discount to the S&P 500. By that measure, the
stock is the cheapest it has been in at least the past 15
years.
This Apple deserves another bite.
(END) Dow Jones Newswires
July 24, 2016 12:15 ET (16:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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