Despite ending 2023 on a strong note, Apple (AAPL) shares have not performed as well as investors would have liked over the past six months. During that span, the stock has traded flat, while the S&P 500 index has risen more than 7%.
But as we look into the rest of the year, there are plenty of reason to be bullish about Apple’s growth prospects, including the company’s anticipated launch of the Vision Pro augmented reality glasses. The tech giant is doing a solid job navigating through the various headwinds that have impacted its business, namely rising inflation and issues in China, among others obstacles. As such, ahead of its first quarter fiscal 2024 earnings results which are due after the closing bell Thursday, Apple stock should be owned, not traded.
The sales prospects for the new iPhone 15 which was launched in September is another reason to be optimistic about Apple’s prospects. The company recently regained its leadership in smartphone shipments, further expanding its installed base. But it’s not just about the iPhones. Apple’s Services segment, which generated $22.3 billion in Q4, rose 16% year over year and has gown impressively from $20.9 billion in Q2. Service revenue should continue to generate high double-digit revenue growth this quarter and well into 2024, which will help offset the macro weakness impacting iPhone sales.
Meanwhile, Apple continues to enjoy a stable stream of recurring revenues, providing a foundation for sustained top-line growth. The company is deploying capital to shareholders via its extensive share buyback program. The buyback program, which reduces the shares outstanding by roughly 3% annually, will help drive higher EPS growth. As such, the market on Thursday will look for further details in the areas to assess an appropriate valuation for the stock.
In the three months that ended December, Wall Street expect the Cupertino, Calif.-based tech giant to earn $2.10 per share on revenue of $118.26 billion. This compares to the year-ago quarter when earnings came to $1.88 per share on revenue of $117.15 billion. For the full year, ending in August, earnings are expected to decline 1.3% year over year to $6.05 per share, while full-year revenue of $364.11 billion will decline 5% year over year.
The projected year-over-year declines for the revenue and profits for the fiscal year are part of the reasons Apple stock has traded sideways for the past six months. However, the market often dismisses or overlook positive aspects for Apple, particularly as it relates to the company’s AI-powered products, growth in the services business (up 15% in Q4), continued operating leverage, and the company’s stock buyback program.
What’s more, in terms of smartphone shipments, Apple recently reclaimed the top spot. This means the company’s install base continues to expand. These factors suggest Apple can still regain its mojo with continued strong execution. In Q4 the company reported $1.46 per share on $89.5 billion in revenue, topping estimates of $1.39 per share on revenue of $88.3 billion. During the quarter, iPhone-related revenue were $43.8 billion, while iPad and Services came in at $6.44 billion and $22.3 billion, respectively.
On Thursday investors will be watching closely to see if Apple can improve on these numbers and whether (or how) inflation might have impacted the company’s guidance for the holiday quarter. The market will want to know how many new phones has Apple sold in the holiday quarter and whether there is any acceleration in the Services segment.
All told, combined with the the company’s momentum in services, efforts towards operational efficiency gains, and strategic capital allocation, there are tons of reason to love Apple stock.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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