Apple Reports Strong Earnings, but Stock Still Overvalued

Apple Stock at a Glance

• Current Morningstar Fair Value Estimate: $130
• Apple Stock Star Rating: 3 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Stable

Apple Earnings Update

Narrow-moat Apple (AAPL) reported impressive fiscal fourth-quarter results which came ahead of our estimates thanks to iPhone and Mac strength. We are maintaining our $130 fair value estimate and still view shares as overvalued. While we remain positive on Apple’s ability to extract revenue and robust profits from its installed base via new products and services, we believe demand for Apple’s products is likely to slow in the next few quarters, following several stellar quarters of growth.

September-quarter revenue of $90 billion was up 8% year over year led by growth in iPhone (10%), Mac (25%), other products (10%), and services (5%). We appreciate that Apple now enjoys over 900 million paid subscribers (up from 860 million last quarter). The iPad segment fell 13% year over year, which we anticipated due to unmaintainable COVID-19-induced work- and learn-from-home trends which boosted tablet demand.

Management refrained from giving explicit revenue guidance for the December quarter due to macro uncertainty, but we expect low-single-digit year-over-year growth. We think the iPhone segment will lead the way with growth of about 10%, partially offset by year-over-year declines in Mac and iPad. We think broader hardware sales for the firm are likely to slow and/or decline in the quarters ahead as consumers deal with currency headwinds, high inflation, and more challenging year-over-year comparisons. Services revenue should also see weaker demand for gaming and digital advertising amid a weaker macro environment.