Apple Stock Forecast: Impressive Q3 EPS/Revenue Numbers Made Apple A Strong Buy

The Apple stock forecast was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Summary:

  • Apple’s stock is +14.4% since my December 21, 2020, take-your-profits recommendation.
  • I am AAPL as a buy because of its big beat on Q3 numbers.
  • For its third quarter, Apple’s EPS was $1.30 and its revenue was $81.4 billion. These figures top Wall Street’s estimates of $1.01 EPS on sales of $73.5 billion.
  • Stronger sales and growing net income fortify Apple’s eight consecutive years of dividend growth.
  • The more infectious variant of the COVID-19 virus is an indirect tailwind to Apple’s Services business. The Services segment’s Q3 revenue was $17.5 billion (+32% Y/Y).

I am reversing the profit-taking sell rating I gave Apple (AAPL) last December 21. The big beat on Apple’s third-quarter EPS and revenue convinced me we should go long on AAPL again. Apple’s Q3 revenue was $81.4 billion (+36% Y/Y), topping analysts’ estimate of $73.5 billion. The third-quarter net income was $21.74 billion, giving AAPL a Q3 EPS of $1.30. This is notably higher than analysts’ average estimate of $1.01. The chart below shows some investors are profit-taking after the July 27 ER. Go contrarian and buy the AAPL shares they are dumping.

(Source: Seeking Alpha Premium)

Seeking Alpha’s Quantitative Rating AI’s algorithm is Neutral on AAPL. My God-given natural intelligence told me to be Bullish on Apple. Seeking Alpha’s Quant AI is Neutral on AAPL because it does not like the stocks D- grade in Value and D+ in Growth. My takeaway is that the A+ grade in Profitability makes AAPL a Strong Buy. Any company that can deliver $21.74 billion in quarterly net income and a 23.45% TTM net income margin is a Strong Buy.

(Source: Seeking Alpha Premium)

My Strong Buy rating is also thanks to the AI stock prediction system of I Know First. Unlike Seeking Alpha’s Quant AI, the 1-year forecast trend score of AAPL from I Know First is still bullish. I have a higher faith in I Know First’s neural network programmers.

Apple stock forecast: Stronger Hardware Sales Fuels Apple’s Growing Dividends & Share Repurchases

My bullish recommendation for AAPL is thanks to its Q3 segments’ numbers. The high-margin hardware business model of Apple is still viable. Third-quarter results showed iPhone revenue was $39.57 billion, $8.24 billion for Mac, $7.37 billion for the iPad, and $8.8 billion for Wearables, Home, and Accessories. Compare these numbers to Q3 2020’s iPhone $26.42 billion, $7.08 billion Mac, and $6.58 billion Mac. Sales of Apple’s hardware products are obviously still on the double-digit year-over-year growth momentum.

Growing sales of high-margin Apple hardware products ultimately lead to consistent profitability. Being a consistent high-profit company, Apple can continue increasing its annual dividend payments. AAPL’s price can get more expensive once income-focused investors realize Apple will keep on increasing its dividend payments and share buybacks. Management is stingy, but Apple has increased its dividend payments for the last eight years.

(Source: Seeking Alpha Premium)

The growing hardware sales of Apple (and the high-margin profit from them) also allows Apple to continuously do multi-billion share buybacks. As of March 31, 2021, Apple spent $17.99 billion. This is a hefty follow up on the $24.77 billion that Apple spent on share buyback during Q4 2020. The massive quarterly budget of Apple for share buybacks assures us that AAPL is not going to fall below $120.

(Source: Ycharts.com)

Apple can afford to spend more than $15 billion in quarterly buybacks because it still has $66.83 billion in total cash. Apple also touts a net operating cash flow of $99.59 billion. Big and small short-sellers are not going to attack AAPL. Apple is extremely rich and profitable.

(Source: Seeking Alpha)

The chart above should also justify the high valuation ratios of AAPL when compared to other hardware-centric companies like (DELL) or HP Inc. (HPQ). High profitability has given Apple a strong balance sheet and a massive levered free cash flow of $80.12 billion. This feat is something that even Xiaomi (XIACF) (the “Apple of China) cannot yet replicate. AAPL is no longer perceived as a growth stock but it still has higher valuation ratios than XIACF.

AAPL is still cheaper though when compared against growth-stock darlings like Amazon (AMZN) and Tesla (TSLA). Tesla’s net income margin is very low at 3.18%. The same could be said for AMZN’s net income margin of 6.42%.

(Source: Seeking Alpha Premium)

Conclusion

The popular slow-growth perception for Apple should change soon. The fast-growing $17.5 billion/quarter Services segment is a very strong growth driver for Apple. The monopoly of Apple on in-app purchases of iOS devices owners will only get more profitable. People are now inspired to learn-from-home and work-from-home. We are now afraid to go out because of the Alpha, Beta, Delta variants of COVID-19. The more people that stay or work from home, the more they will be tempted to spend more on iOS games, books, streaming shows, and apps.

AAPL is a buy because iOS device owners spent $41.5 billion on Apple’s app store in 1H 2021. This is +24.8% higher than 1H 2020 spending of $34 billion. 

(Source: Sensor Tower)

The high-margin approach of Apple in selling its iOS hardware products is still valued higher than the low-5%-margin-on-hardware strategy of Xiaomi. Lastly, AAPL is a very efficient company. Apple’s hardware-centric focus still gives it a higher operating margin than advertising and search engine monopolist Google (GOOGL), 27.3% versus 25.3%.

(Source: Finbox.io)

I hope this article’s salient points and the bullish 1-year trend score that I Know First has for AAPL will convince you to go long on Apple. AAPL can trade higher than $155 if the coming Q4 2021 delivers EPS of $1.40. Thank you for reading and evaluating the investment thesis of this article. 

Past Success With AAPL Stock Forecast

I Know First has been bullish on the Apple stock forecast in the past. On July 10, 2020, the I Know First algorithm issued a forecast for Apple stock price and recommended Apple as one of the best consumer stocks to buy. The AI-driven Apple stock prediction was successful on a 1 year time horizon resulting in more than 51.66%.

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