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All eyes are on Apple AAPL as it is set to report its fiscal fourth quarter earnings Thursday, October 27. Diversity and expansion in its paid services have helped boost the company’s top and bottom lines as AAPL stock has outperformed the Nasdaq this year. AAPL has also outperformed the broader market. 

Similar to other big tech giants like Alphabet GOOGL and Amazon AMZN, Apple has continued to innovate. Apple’s iCloud services, App store, Apple Music, Apple Pay, digital content, and licensing have expanded the company’s revenue streams.

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Despite the expansion, Apple’s business is still centered around its flagship iPhone. While diversification among its businesses has been rewarding, going into its fiscal Q4 earnings a strong boost from its iPhone revenue could help the stock go higher.

This will be especially true amid much uncertainty in the market and treacherous operating environments for technology companies. The ability to show an increase in iPhone revenue will surely be noted by Wall Street and get investors optimistic about the stock because sales for many products are declining amid such a high inflationary environment.

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iPhone revenue deserves some of the credit for AAPL outperforming the Nasdaq this year as many technology stocks have suffered. From the chart above we can see that the sales surprises for the iPhone have decreased but have still been positive despite the economy.

iPhone revenue has been up in the last two quarters, giving AAPL stock some assistance in its last two earnings beats. This also helped the stock stay afloat during the second quarter as inflation concerns continued.

Last quarter, iPhone revenue was $40.6 billion, up 3%. Investors will hope this continues, with the Zacks Estimate for iPhone revenue during the current quarter at $42.7 billion and nearly half of the company’s total revenue. This would also be a 10% increase and should give the company’s fiscal Q4 earnings a nice boost.

Fiscal Q4 Outlook

The Zacks Consensus Estimate for Apple’s fiscal Q4 earnings is $1.26 a share, which would represent a 1% increase from Q4 2021. Sales for Q4 are expected to be up 6% at $88.47 billion. Earnings estimates for the period have gone down from $1.31 at the beginning of the quarter but have started to rise again over the last week.

Year over year, AAPL earnings are expected to rise 9% in 2022 and another 6% in FY23 at $6.50 per share. Top line growth is also expected, with sales set to be up 7% this year and another 5% in FY23 to $412.57 billion.

Performance & Valuation

Apple is down -15% YTD to outperform the S&P 500’s -19% and the Nasdaq’s -28%. Even better, over the last decade, AAPL is up +631% to crush the benchmark and the Nasdaq.

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AAPL has a P/E of 23.4X. This is well above the industry average of 6.7X. However, Wall Street has historically been willing to pay a premium for Apple stock for its growth prospects, innovation, and industry dominance. AAPL trades at a discount to its decade-high of 38.6X and is slightly above the median of 15.5X. And AAPL’s price per share might be attractive to some considering the stock is two years removed from a 4-1 split in 2020, trading at around $150 a share.

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Image Source: Zacks Investment Research

Bottom Line

iPhone revenue could play a huge role in AAPL posting another earnings beat amid economic uncertainty. Revenue from the iPhone has traditionally been the company’s bread and butter and showing strength in this segment could be a catalyst for Apple stock and boost investor optimism.

AAPL currently lands a Zacks Rank #3 (Hold). Investors may want to consider companies with good cash flow and stronger balance sheets to support themselves during economic downturns. Apple fits this bill and does offer an annualized dividend yield of 0.60% at $0.92 per share. And the average Zacks Price target offers 21% upside from current levels.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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