For the fourth consecutive quarter, Apple (AAPL) surpassed Wall Street's earnings expectations. In what has become habitual for America's largest company, Apple beat both earnings-per-share (EPS) and revenue estimates. After Monday's close, Apple reported Q2 EPS of $2.33 (vs. analyst expectations of $2.16) and reported Q2 revenue of $58.01B (vs. analyst expectations of $56.06B). Shares of Apple are already up over 20% YTD, and increased 1.5% in after-hours trading.
Apple's EPS and revenue figures weren’t the only metric to exceed expectations. Apple sold 61.2 million iPhones in Q2, 4 million more than analysts had projected. The boost in sales was attributed in large part to strong iPhone 6 and iPhone 6 Plus demand in Asia. In China, iPhone sales increased by more than 70%, which accounted for nearly 30% of Apple’s Q2 revenue. As a whole, total emerging markets revenue increased 58% Y/Y. Apple’s extensive marketing campaigns in China, India, and Southeast Asian countries, are clearly paying huge dividends.
The only "miss" in Apple's Q2 report was a shortfall in iPad sales. CEO Tim Cook acknowledged that the popularity of Apple's new, larger iPhones was “cannibalizing” iPad sales figures. That said, Apple still managed to sell an astounding 12.6 million iPads. Although Cook has not indicated that Apple intends to “phase out” the iPad, this is not the first, nor will it be the last, time Apple has allowed its iPhone portfolio to jeopardize sales of another product. For example, when Apple first introduced iTunes on the iPhone 3G, iPod sales quickly diminished. Now, iPod sales are essentially irrelevant to Apple’s bottom line, and shareholders couldn't care less.
With its market cap rapidly approaching $800B, nearly double the value of Microsoft (MSFT), Apple also announced its would return more capital to shareholders. Furthermore, the company’s board of directors increased its quarterly dividend by 11%, thereby replacing Exxon Mobil (XOM) as Wall Street’s top dividend issuer. Apple’s board has also increased its authorized share-repurchasing program by $50B, from $90B to $140B.
For Apple’s shareholders, the company continues to prove an incredibly rewarding and consistent investment. Moreover, with its increased dividend, returns are set to skyrocket. For investors who have awaited a reasonable entry point, all signs indicate that this week is as good a time as any to buy in. Investors must understand that, because Apple continues to top expectations and raise quarterly guidance, the company's stock price will only continue to increase. However, just because Apple shares have increased 20% YTD doesn't imply the stock is overpriced. In fact, Apple currently trades at a P/E ratio of 17.96, roughly half the industry average P/E ratio of 32.46, and at a discount to the S&P 500.
In addition, especially considering current market volatility, Apple is an extremely secure investment. Apple's beta indicator is .96, which means that Apple is statistically 4% less volatile than the consumer electronics market as a whole. For comparison, Hewlett-Packard (HPQ) has a beta indicator of 1.5, meaning that the company is theoretically 50% more volatile than its competitors.
If all this good news still hasn't convinced you that it’s time to buy Apple stock, analysts also remain bullish about the company's prospects. The mean price target for Apple is about $142, 6% above its current price, and some analysts have price targets as high as $185. Activist investor Carl Icahn believes Apple's fair value price is $210. Needless to say, Apple stock is a consensus “BUY” among analysts and billionaires.
The overarching concern about Apple's inability to sustain its amazing growth has been all but disproven by four straight quarters of shattering earnings results. When companies are as successful as Apple, investors often miss the opportunity to be part of their remarkable uptick. Instead, value traders sit on the sideline waiting for the stock price to fall. Our advice: don’t do this.