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Apple's Allure Not in Decline

Tough currency and macroeconomic headwinds will weigh on the coming quarters, but the firm’s competitive position is still strong and shares are attractive today, says Morningstar’s Brian Colello.


Brian Colello: Apple reported disappointing fiscal [second-quarter] results last night and gave a [third-quarter] forecast that was even a little bit worse than what we were previously expecting; they missed on virtually every metric. But that said, we still didn't see a lot that changes our long-term view on the company. We maintained our $133 fair value estimate. We still think the company's competitive position is very strong. We think the headwinds that they're facing are currency-related, macroeconomic-related, to some extent less excitement about the iPhone 6s than in prior years. But with the stock trading at about $97 today, it looks as if Apple's trading... The stock price implies as if Apple is in secular decline and we wouldn't go that far. We still think there's a lot of customer loyalty there. We still see a very strong competitive position for Apple, and we do like the long-term picture.

We knew going into the quarter that Apple's iPhone sales were going to be down from the year-ago period. So in those terms, sales of 51 million units were only slightly worse than expected--not too bad. China was down as expected, there's certainly some macroeconomic issues there. Pricing was actually weak for the iPhone as a whole, which implies a poor mix of phone sales in China towards the lower-priced models. U.S. and Europe were also down for Apple as a whole, which implies that there weren't great sales in developed markets either. The only real bright spot in terms of regions was India that Apple touted up 56% year-over-year. It's very possible that India becomes an above-average growth region for Apple over the next few years.

Brian Colello does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.