No iPhone 'Super Cycle' but Solid Results for Apple
We plan to modestly raise our fair value estimate for the narrow-moat firm.
Apple (AAPL) reported solid fiscal second-quarter results and provided investors with a decent third-quarter forecast that was not as bad as we feared. Although the iPhone X “super cycle” did not transpire over the past six months, iPhone unit sales held up well while higher average selling prices, or ASPs, per device continued to contribute to robust revenue growth. We were also impressed with growth seen in Other Products and Services, especially as we continue to believe that sales of add-on hardware and services should continue to drive switching costs that will help Apple make repeat, high-margin iPhone sales to its customers over time. Meanwhile, the company authorized another $100 billion of share repurchases while boosting its quarterly dividend by 16% to $0.73 per share, taking advantage of changes in U.S. corporate tax policies. We plan to modestly raise our fair value estimate for narrow-moat Apple to $175 per share from $170 but continue to view shares as fairly valued.
Apple sold 52.2 million iPhones in the September quarter, up 3% year over year. However, iPhone revenue rose 14% year over year, thanks to an 11% increase in ASPs driven by sales of the higher-priced iPhone X. Apple noted that the X was its highest selling model in each of its 13 weeks in the March quarter (as opposed to the iPhone 8 or 8 Plus), which we again view as an encouraging sign regarding Apple’s ability to maintain premium pricing. Other Products revenue rose 38% year over year thanks to Apple Watch and Airpods, which we think is an underrated, innovative hit for Apple. Services revenue rose 31% year over year, accelerating from 18% year-over-year growth in the December quarter, with particular strength in iCloud storage and Apple Music.
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Brian Colello does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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