Apple, Inc. (AAPL) Stock Still a Buy Despite Rumors of iPhone 8 Delays

AAPL shares should head higher, delivering 10% returns from current levels

Tech juggernaut Apple, Inc. (NASDAQ:AAPL) will report third quarter fiscal 2017 earnings results on August 1. AAPL stock has been on fire this year, rising more than 30% year to date, besting the 9% rise in the Dow Jones Industrial Average and the 9% rise in the S&P 500 Index.

Apple, Inc. (AAPL) Stock Still a Buy Despite Rumors of iPhone 8 Delays

Aside from crushing all the major indexes, the world’s largest publicly traded company, is keeping pace with the more nimbler growth group known as FANG stocks, referring to Facebook Inc (NASDAQ:FB),, Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).

Nevertheless, AAPL stockholders are not as secure about their investments as they were at the start of the year, given that there are rumors that the next generation iPhone, presumably the “iPhone 8” could be delayed until the December quarter from the the Cupertino-based tech giant’s traditional launch date in September. Apple suppliers have reportedly struggled with not only parts shortages at launch, but also manufacturing difficulties.

These issues, though not confirmed by Apple, still puts the iPhone 8 — the first completely redesigned iPhone since models 6 and 6 Plus back in 2014 — in limbo. As such, investors are questioning whether to take profits in APPL stock now, which is up 30% year to date and 51% in the past 12 months.

Much of the rumor mill is running with the notion that the new features of the phone increase the complexity of the manufacturing process. The phone, rumored to have a new OLED display, could sell for more than $1,000 per device. Most concerns about the iPhone 8 are already priced into APPL stock. With reports of delays come more risk for those holding these shares than for those selling at what some analysts have called “Peak Apple.”

Buy AAPL Stock On Any Dip

From my vantage point, however, doomsday reports surrounding any phone delay create an opportunity to buy AAPL stock on any dip. Robert Cihra, analyst at Guggenheim, echoed the same sentiment.

“We believe Apple has some valid long-term issues that ultimately matter for the stock (e.g., size, elongating smartphone replacement cycles, China, Services) but do NOT think any short-lived delay launching its new high-end iPhone 8 SKU qualifies as one of them,” Cihra wrote in a recent note to investors. “Rather, we believe its UNIQUE iOS means loyal users will WAIT, so any units pushed out of CY17 would just be pushed into CY18.”

As such, it would be a mistake to part with Apple stock now, especially given the company’s massive stockpile of almost $260 billion in cash. What’s more, despite the year-to-date gains, AAPL stock still looks like a bargain. Based on fiscal 2018 consensus estimates of $10.63 per share, the shares — currently trading around $150 — are priced at a forward P/E of just 14, which is about four points below the S&P 500 index.


Plus, when adjusting out Apple’s cash, that forward P/E falls to about 8. This means, assuming AAPL was priced on par with the rest of the market, the shares would trade today at around $165 to $170. And that’s excellent value, when combined with a 1.7% annual yield.

Bottom Line for AAPL Stock

For the quarter that ended June, Apple is expected to earn $1.57 per share on revenue of $44.9 billion, translating to year-over-year growth of 10.5% and 6%, respectively. For the full year, ending December, earnings are projected to rise 7.2% year over year to $8.91 per share of AAPL stock, while full year revenue of $226.1 billion would be an increase of 6% year over year.

The quarterly and full-year projections aren’t breathtaking, but analysts will focus more on the Apple’s transition to services, including Apple Music, the App Store, iCloud, Apple Care and Apple Pay. Services revenue grew 18% to $7.04 billion in the second quarter, topping forecasts of $6.91 billion. With Services quickly becoming Apple’s second-largest business segment, while producing higher margins, AAPL is becoming better diversified.

All told, Apple has been on a winning streak over the past year, and in the process AAPL stock has made investors tons of money. And following its earnings results next week, these shares should head higher, reaching $160 to $165 per share, delivering 10% returns.

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

Article printed from InvestorPlace Media,

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