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By Jeremy Glaser and Brian Colello, CPA | 10-25-2012 05:00 PM

Apple's Valuation Still Compelling

Despite a mixed bag in the tech giant's fiscal first quarter, the firm's growing earnings power makes Apple shares attractive, says Morningstar's Brian Colello.

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. Mixed bag is not how you usually describe Apple earnings, but that's how our Apple analyst Brian Colello saw them this quarter. I am here with him now to get more details.

Brian, thanks for joining me.

Brian Colello: Thanks, Jeremy.

Glaser: So, let's take a look at some of the big numbers this quarter. What did Apple report, and how did that compare to your expectations?

Colello: Sure. For the fiscal fourth quarter, for the September quarter, revenue was actually a little bit better than consensus estimates. Earnings per share were a little light. So, a little bit again mixed bag there. Looking ahead to fiscal first quarter, for the December quarter, we think they are pointing at strong revenue growth with their forecast at $52 billion in revenue. Although Apple is typically conservative, we think it will be easy for them to meet consensus estimates. It will be ahead of our estimates. We think that's going to point to a strong iPhone 5 launch, probably some decent sales of the iPad Mini, as well. So, we think that's a good revenue number.

The other bit of a disappointment, and again going back to the mixed bag, is that the EPS outlook was light. Apple hinted that gross margin for some of these products, the newer products, is going to be lower than anticipated, just higher component costs and other issues associated with launching so many new products at one time.

Glaser: Let's take a look at some of their individual product lines. First in iPhone, what trends were you seeing there?

Colello: I think iPhone for the September quarter was solid, but not spectacular, and I don't think it really would be, again with the iPhone 5 [released with] only 10 days left in the September quarter. You certainly saw a trend in the months prior of people waiting to buy the iPhone 5. So, in that regard, we think the September quarter was just fine in terms of iPhone.

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