Apple (AAPL) Stock: A WHOLE Lot More to Love After Earnings

Apple Inc. (NASDAQ:AAPL) reported earnings that exceeded expectations when it posted last quarter’s results Monday evening. And Apple stock was up a bit (though not a lot) in Tuesday’s premarket trading, suggesting investors had a pretty good idea another beat was coming.

Apple stock, apple earnings

In fact, the strong rally in the AAPL stock price leading up to 2015’s Q2 Apple earnings report effectively confirms traders knew the news would be encouraging.

The prod for the solid numbers were sales of the iPhone 6 in China, largely as expected. In fact, the iPhone did even better in China last quarter than anticipated.

Sure, the Apple earnings report didn’t score straight A’s — there was one minor sore spot — but between the overall results and some compelling comments regarding future initiatives, Apple stock has held onto its status as the world’s most beloved investment.

Apple Earnings Results

When all was said and done, AAPL earned $2.33 per share on $58 billion in sales. Analysts were only expecting a profit of $2.15 per share of Apple stock, and revenue of $55.9 billion. Both the top and bottom lines topped year-ago levels of $45.65 billion and $1.66 per share of Apple stock, respectively.

Those weren’t the only big numbers dished out in the Apple earnings report for fiscal Q2.

AAPL, with another $13.5 billion worth of income added to its coffers in its second quarter, upped the size of its stock buyback from a $90 billion affair to $140 million. The total size of the capital return package (which includes the buyback) grew to $200 million. And if it wanted to, Apple could complete the buyback and capital return right now. It finished the quarter with $194 billion in the bank.

It’s not going to finish doling out that value to current owners of Apple stock nearly that soon, though. The dividend payout was upped a decent 11% from its current levels, but that’s still only 52 cents per share per quarter, translating into a modest dividend yield of 1.5%.

How AAPL Did It

The lion’s share of the company’s fiscal Q2 revenue growth can be attributed to the iPhone, of course.

Apple sold 61.2 million iPhones versus expectations of 58.1 million units. And yes, China made the difference. Sales in China grew 71% on a year-over-year basis last quarter, making up 29% of the company’s total Q2 revenue. It’s also worth noting that iOS app sales in China widened their lead over sales of apps for the Android OS made by Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) during the first quarter of the year.

The iPad, however, continues to disappoint. iPad shipments fell 23%, to only 12.6 million. It’s the fifth straight quarter the iPad has seen dwindling year-over-year comparables.

Still, CEO Tim Cook is hopeful about the iPad’s future, saying:

“Have we had cannibalization? The answer is yes. We’re clearly seeing cannibalization from iPhone and, on the other side, from the Mac. Of course, as I’ve said before, we’ve never worried about that. It is what it is. That will play out. At some point it will stabilize. I’m not sure precisely when but I’m pretty confident that it will.

The IBM (NYSE:IBM) partnership I think is in its early stages in terms of bearing fruit here. But everything I see I like on it. I’m a big believer in the ability for iPad to play in a major way in enterprise. I’m looking forward to seeing that play out as we move forward.”

Either way, the ground that Apple is losing on the iPad front is more than being offset by forward progress with iPhones.

Bottom Line for Apple Stock

For the current quarter, Apple offered revenue guidance of $46 billion to $48 billion. Though it’s unlikely we’ll see iPhone sales grow from the previous quarter to the current one, the company does expect the iPhone’s sales momentum to linger. Tim Cook explained:

“When you look at the underlying data it makes you feel a lot better than the sales do. And so things like first time buyers rates — the latest numbers from the U.S. are somewhere around 40%. If you look at China they’re almost 70%. These numbers are not numbers you’d get if the market was saturated. And so I continue to believe, even though I’ve seen different people write that, I think that theory is not correct and do not see that.”

While iPhones still will be doing the heavy lifting in the third fiscal quarter of 2015, we’re finally going to see some of the new initiatives start to chip in.

One of those will be the new HBO subscription-based streaming service launched last month, which will play Time Warner’s (NYSE:TWX) HBO content on any Apple device … even for customers that don’t have an HBO subscription through their cable TV provider. While it’s not the full-blown Internet-delivered alternative to cable television the company announced in March, it’s apt to be a taste of what’s to come on the television content front.

And that’s just one of a handful of projects Apple has in the works.

Bottom Line

Like it or not, there’s not a lot haters can complain about concerning Apple stock following its earnings report.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.

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