Weekly Wrap: Apple Ups Its Goals, Facebook Keeps Investing

Jeremy Glaser: Apple sets an ambitious goal; Facebook will keep investing; Exxon takes a charge; and did UPS deliver? This time on the Morningstar Weekly Wrap.

Apple had strong results on the back of record iPhone shipments. Our analyst Brian Colello was struck by the firm's plan to expand its services business.

Brian Colello: They announced a target to try to and double their services revenue over the next four years. It's a really aggressive target in our opinion. That's higher than our estimates and what we were expecting. But they cited strong growth in AppleCare, in iCloud storage; App Store continuing to do extremely well.

We think this is still a little bit of a lagging indicator. It's hard to see Apple grow the services business if people stopped buying iPhones and if the installed base goes down. But the fact that people are upgrading, they're getting switchers from Android, and they're driving not just the initial hardware sale but services and software sales on top of it, is a real positive for Apple.

Glaser: Facebook saw its advertising revenue grow by more than 50% year over year as it saw what our analyst Ali Mogharabi described as healthy gains in its monthly average users and revenue per user. Although profitability improved in the fourth quarter, management says that's not likely to happen again in 2017 as it doesn't plan on ramping up the number of ads users see and as it continues to invest in the business to keep competitors like Snap at bay. We see the shares as fairly valued today.

UPS issues disappointing guidance along with their quarterly results. Analyst Keith Schoonmaker gives his take.

Keith Schoonmaker: UPS increased its parcel volume 7% in the fourth quarter and capped off 2016 with record revenue and earnings. However, behind these numbers, B2C deliveries increased 11% and now constituted 55% of total shipments. This comes at a cost. The firm increased its capital expenditures 25% in 2016 and plans to increase an additional 33% in 2017. Because this investment is a greater use of cash than we previously projected, we decreased our free cash flow-based valuation from $105 to $102 per share. We maintain our wide-moat rating on UPS, and shares are trading right around our fair value estimate at this time.

Glaser: Exxon took a rare impairment charge in its fourth quarter, sending its earnings tumbling, but analyst Allen Good says beyond that it was a decent period for the oil major. Excluding the charge, upstream earnings improved year over year while production was off only 1% in 2016. Into next year, he sees a boost in capital spending but thinks the firm will still produce enough free cash flow to cover its dividend. Shares do look somewhat overvalued today.

And in case you missed it, on Morningstar.com this week, Karen Wallace looked at the 10 cheapest, and the 10 more expensive, stocks in the Morningstar Dividend Yield Focus Index.