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Apple (AAPL) Earnings Analysis: Buy or Watch for Gains?

Tech titan Apple (AAPL) kicked off 2024 with legal challenges, weakening demand in China, and heightened regulatory scrutiny. However, as anticipation builds for the company’s upcoming fiscal 2024 first-quarter earnings, should investors buy or hold the stock? Keep reading to find out…

Tech giant Apple Inc. (AAPL) is all set to disclose its fiscal 2024 first quarter results on Thursday, February 1, 2024. Wall Street forecasts AAPL’s first-quarter revenue to experience a marginal year-over-year increase to $118.26 billion, while its EPS for the same quarter is anticipated to witness a notable 11.9% year-over-year surge to $2.10. Meanwhile, AAPL’s fiscal 2023 fourth-quarter results painted a mixed picture.

Although the company exceeded revenue and EPS estimates for the fourth quarter, its Mac revenue of $7.61 billion fell short of analysts' expectations, which were pegged at $8.63 billion. Similarly, its services revenue of $22.31 billion was slightly below the estimated $21.35 billion. On a brighter note, its revenue from iPhone sales met Wall Street expectations.

AAPL is navigating a complex landscape this year, marked by legal disputes and intensified regulatory scrutiny from the Biden administration and the European Union (EU) authorities.

The Biden administration is intensifying scrutiny on AAPL and other tech giants, particularly regarding the dominance of its App Store. Concurrently, legislative efforts in the EU aimed at curbing the power of Big Tech are compelling changes in AAPL’s operations. 

As part of its efforts to adhere to the EU's forthcoming Digital Markets Act (DMA), AAPL will soon permit software developers to distribute their apps to AAPL devices through alternative stores. Beginning this March, developers can offer alternative iPhone app stores and avoid AAPL’s 30% in-app payment commission.

Adding to the company’s mounting concerns, AAPL’s shares tumbled last week after Microsoft Corporation (MSFT) surpassed the $3 trillion market cap, becoming the world's most valuable publicly traded company, dethroning AAPL from the top spot for the first time since 2021 after the iPhone maker's shares experienced a sluggish start to the year on growing concerns over demand.

AAPL has been wrestling with declining demand in China for its flagship product, the iPhone, which serves as its primary revenue driver due to the country's sluggish economic recovery from the pandemic. Currently, AAPL boasts a $2.97 trillion market cap, marginally lower than MSFT’s $3.05 trillion.

Nevertheless, on the brighter side, the launch of AAPL’s new revolutionary entertainment offering, Apple Vision Pro, on February 2, 2024, could bolster the company’s prospects. Greg Joswiak, AAPL’s Senior Vice President of Worldwide Marketing, described Apple Vision Pro as the ultimate entertainment device, offering a unique experience unlike anything seen before.

Furthermore, on November 13, 2023, AAPL paid its shareholders a quarterly dividend of $0.24 per share. The company’s annual dividend of $0.96 translates to a 0.50% yield on the prevailing price, while its four-year average dividend yield is 0.64%. Its dividend payouts have grown at CAGRs of 5.6% and 6.2% over the past three and five years, respectively.

AAPL’s shares have rallied 13.9% over the past three months but plunged marginally over the past month to close the last trading session at $191.73.

Here are the fundamental aspects of AAPL that could influence its performance in the near term:

Mixed Financials

For the fiscal 2023 fourth quarter, which ended on September 30, 2023, AAPL's total net sales declined marginally year-over-year to $89.50 billion. However, its gross margin improved 6.1% from the year-ago value to $40.43 billion. 

Furthermore, the company’s net income and EPS amounted to $22.96 billion and $1.46, up 10.8% and 13.2% from the prior-year quarter, respectively. On the other hand, during the same quarter, the company’s total operating expenses rose 1.9% from the year-ago value to $13.46 billion.

High Profitability

AAPL's trailing-12-month EBIT margin of 28.82% is 518.9% higher than the industry average of 4.82%. Also, its trailing-12-month net income margin of 25.31% is substantially higher than the 2.05% industry average.

Furthermore, the stock’s trailing-12-month levered FCF and EBITDA margins of 21.44% and 32.83% are 141.9% and 255.4% higher than the 8.86% and 9.24% industry averages, respectively.

Stretched Valuation

In terms of forward non-GAAP PEG, AAPL’s 3.03x is 46.1% higher than the industry average of 2.08x. Also, its forward EV/Sales multiple of 7.41 is 152.9% higher than the 2.93x industry average. Likewise, the stock’s forward Price/Sales multiple of 7.51 is 155.9% higher than the 2.93x industry average.

POWR Ratings Reflect Uncertainty

AAPL’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a C grade for Growth, justified by its mixed financial performance in the fourth quarter. Meanwhile, AAPL’s D grade for Value is consistent with its stretched valuation metrics. On the other hand, the stock’s A grade for Quality is in sync with its higher-than-industry profitability metrics.

In the A-rated Technology - Hardware industry, AAPL is ranked #22 out of the 36 stocks.    

Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Sentiment. Get all ratings of AAPL here.

Bottom Line

While AAPL’s efforts to comply with EU regulations and the launch of its much-anticipated product, Apple Vision Pro, could brighten the company’s long-term prospects, its ongoing legal battles and subdued demand for iPhones in China remain significant hurdles for the company.

Additionally, AAPL’s mixed fundamentals underscore the need for exercising caution. Thus, it might be prudent for investors to await a more opportune entry point within the stock.

How Does Apple Inc. (AAPL) Stack Up Against Its Peers?

While AAPL has an overall grade of C, equating to a Neutral rating, you may check out these other stocks within the Technology - Hardware industry: AstroNova, Inc. (ALOT), HP Inc. (HPQ), and Vtech Holdings Limited (VTKLY), carrying A (Strong Buy) ratings. To explore more Technology - Hardware stocks, click here.

What To Do Next?

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AAPL shares were trading at $188.10 per share on Tuesday afternoon, down $3.63 (-1.89%). Year-to-date, AAPL has declined -2.30%, versus a 3.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.


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