Apple Stock: How Did the Tech Giant Perform In the June Quarter?
Apple (NASDAQ: AAPL)
soldiers on. That’s the best way to describe the company’s recent
earnings and outlook. The rest of the world might face multiple
issues when it comes to supply chain, undersupply of semiconductor
chips, labor shortages, and changes in algorithms, but Apple
continues to soldier on.
Apple beat estimates in fiscal Q3
Apple is a juggernaut that can’t
be stopped. The company reported its numbers for the third quarter
of fiscal 2022 (ended in June). It was the third successive quarter
where the tech behemoth beat market expectations.
Apple’s adjusted earnings per
share came in at $1.2 versus an estimated $1.16. Further, revenue
was $83 billion compared to an estimated $82.81 billion. Apple’s
iPhone revenue moved up 3% year-over-year to $40.67 billion
compared to an estimate of 38.33 billion.
The fastest growing segment for
Apple was its Services business which grew 12% year-over-year to
$19.6 billion. It reported a gross margin of 43.26% versus
estimates of 42.61%.
Apple stock is down 9% this year,
outpacing the broader S&P 500 index, which has fallen 13%
year to date. Analysts are expecting sales and earnings to improve
sequentially to $90 billion and $1.31 per share, respectively, in
fiscal Q4 of 2022.
Apple didn’t give any revenue
guidance for the fourth quarter of FY2022, but in an interview with
CNBC’s Steve Kovach, Apple CEO Time Cook said, “In terms of an
outlook in the aggregate, we expect revenue to accelerate in the
September quarter despite seeing some pockets of
Apple and inflation Headwinds
Apple will have to get ready for
a tough second half of 2022. The general consensus is that the
consumer electronics market is headed for a cool down in this
period. On July 27, retailer Best Buy
(NYSE: BBY) forecasted a sharp drop in sales as inflation
hits customer pockets hard. Earlier this year,
Walmart (NYSE: WMT) maintained higher gas and food prices
would cause customers to spend less on discretionary
Supply chains around the world,
especially when it comes to the chip shortage, are still in a mess.
Apple is not immune to inflation either, but Cook said the company
would continue to make investments in certain segments. Cook
stated, “We see it [inflation] in things like logistics and wages
and certain silicon components and we’re still hiring, but we’re
doing it on a deliberate basis.”
The real reason that Apple can
weather a bad environment in the short term is that it has around
$28.8 billion in cash and equivalents. Over the last nine months,
it has generated around $98 billion in cash flow. With reserves and
cash flow like these, it can pretty much weather and continue to
invest in any economic environment.
A Warren Buffett favorite
Over the last 5 years, AAPL stock
has returned 353.73% to its consumers. Further, Apple accounts for
over 40% of Warren Buffett’s Berkshire Hathway portfolio. Buffett
also bought $600 million worth of Apple stock in the first quarter
Buffett’s investing philosophy is
focused on long-term wealth creation. Right now, there are several
headwinds that Apple will face, including a stronger U.S. dollar.
But the company’s revenues are expected to continue to move
upwards, albeit at a slower level, for the next couple of
AAPL stock has a PE ratio of 27x
and a price-to-sales ratio of 6.7x, which is relatively expensive.
While the rest of the Big Tech stocks are struggling with
decelerating advertising revenue and lower spending by consumers
and brands, Apple is confident of growth.
Apple’s stock price is currently
trading at $162.51, and the average target for the same is $181.46,
a potential upside of 11.69%. It might not seem like a lot when
compared to other growth tech stocks, but Apple is a no-brainer to
have in your portfolio. Its cash flows are steady, its reserves are
huge, the balance sheet is among the best ones in the market and it
is one of the safest tech stocks available.
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