I'm Reaffirming My $200 Apple Price Target On Tuesday's Good Results

 | May 01, 2018 | 7:19 PM EDT
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

aapl

,

tsm

,

nflx

,

amzn

Apple (AAPL) popped more than 3% in aftermarket trading Tuesday evening to about $175 after the tech giant delivered an earnings report that served as a sigh of relief for many investors -- and is prompting me to reaffirm my $200 price target for the stock.

AAPL served up results on the top and bottom line that were ahead of expectations, guided current quarter revenue ahead of expectations and upsized not only its share repurchase program, but its dividend as well.

Heading into the earnings report, investors had become increasingly concerned over iPhone shipments for the quarter, particularly for the iPhone X, following recent comments on high-end smartphone demand from Taiwan Semiconductor (TSM) , Samsung and others. That set a low sentiment bar, which the company once again walked over.

What Apple delivered included iPhone shipments modestly ahead of expectations -- 52.2 million vs. 52.0 million -- and an average selling price that fell $70 to $729. That was down, but certainly not the disaster that many had fretted for the iPhone X.

Meanwhile, iPad shipments were also stronger than expected, while Apple continued to grow its services business. Mac sales were in line with analyst forecasts.

Looking at the services business, Apple is well on track to deliver on its $50 billion target by 2021. And that's before we factor in what's to come from its recent acquisitions of Shazam and Texture, as well as its burgeoning original content moves. In my view, that original-content move, which replicates a strategy employed by Netflix (NFLX) and Amazon (AMZN) , will make Apple's already incredibly sticky devices even more so.

As for forward guidance, Apple put revenue ahead of consensus expectations and signaled a modest dip in gross margins due to the memory-pricing environment. Even so, the sequential comparison for revenue equates to a quarter over quarter drop of 12.5% to 15.5%, which likely reflects a mix shift in iPhones toward non-iPhone models. Still, that was pretty much as expected -- and far better than the doomsayers were predicting.

The bottom line on Apple's quarterly results and forward outlook was that they show that investors fretted about the iPhone X to an extreme degree, but forgot that the company has a portfolio of iPhone products, as well as other products and services. Some might see the report as giving investors a sigh of relief, but I see it more as a reminder that investors shouldn't count Apple out as we move into an increasingly digital lifestyle.

Is the company still primarily tied to the iPhone? Yes -- but it's more than just the iPhone, and that's something that will become more apparent in the coming year. We're apt to see more of that in a month's time at the company's annual World-Wide Developer Conference. That will be followed several months later by what continues to sound like an iPhone-product line-up refresh, with several models at favorable price points.

Another concern heading into the earnings report was Apple's position in China, prompted by third-party reports over falling smartphone market share. While the company's China revenue fell sequentially, it rose 21% year-over-year for the quarter with Apple touting the iPhone X as the most popular smartphone in the region. The device's higher ASP helps explain that geographic revenue beat. As mentioned above, Apple's upcoming iPhone refresh with some better-priced models should help expand its China position as well as India and other countries.

The added cherry on top of the company's "meet to beat" quarter and outlook was the incremental $100 billion share repurchase program and the 16% increase in the dividend. That dividend boost brings the company's annual dividend to $2.92 per share, which equates to a 1.7% dividend yield.

Looking at dividend yields over the past few years and applying that to the new dividend supports my $200 price target for Apple shares vs. Tuesday evening's after-hours price of around $175.

Columnist Conversations

Tilray's staggering 41% rise this morning leaves the company with an insane valuation and leaves Canopy Growth...
I badly want to be the person that calls the top in red-hot cannabis stocks, but fear looking like a short-ter...
Now the government will get to really dive into the inner workings of Tesla (TSLA) . Who knows what else they...
In GS I see key price support at the 224.49-226.42 area.  I also have timing for a possible low.  I ...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

COLUMNIST TWEETS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.