December 23, 2013
Recommendation: C-rated Hold
Welcome to the Stock of the Day for December 23, 2013. Shares of Apple Inc. (AAPL) are rising after China Mobile Ltd. Agreed to sell certain iPhone 5 models in its retail stores across China. AAPL spent pretty much all of 2013 as a sell in my book, so is now really the time to take a bite out of AAPL?
Company Profile: From tablets to smartphones to mp3 players, Apple has made its mission to put the "i" in consumer electronics. The company's iPod and iTunes lead the digital music industry, and the iPhone is one of the hottest smartphones out there. AAPL also hasn't forgotten its personal computing roots and has cut into the dominance of Windows with its OS X operating system and fleet of Mac computers. Apple is a regular in the major market headlines, as consumer appetite for its products seems to be nearly insatiable. People around the world will gladly stand in line for hours, even days, to be among the first to get their hands on the next generation of products.
Dealbook: Over the weekend, Apple and China Mobile signed an agreement to make iPhone 5c and 5s models widely available in the second-largest market for smartphones. This deal has been six years in the making and means that Apple will draw in business from China Mobile's 760 million customers. Following the announcement, analysts revised their EPS estimates for this quarter, next quarter, this year and next year.
Earnings Outlook: Looking ahead to FY 2014, Apple is headed towards just 7.8% annual sales growth and 9.7% earnings growth—that's nowhere near the kind of growth we've seen in past quarters. Apple is expected to continue posting single-digit sales and earnings growth through the end of FY 2015. Then again, the company has acknowledged that it is no longer a growth stock, so it has been returning value to shareholders in the form of dividends and stock buybacks instead. Currently, Apple has a $60 billion stock buyback program underway and the stock yields 2.2%.
Current Ratings: For the past 10 months, AAPL has been a sell in Portfolio Grader. However, things have been looking up in the month of December. Currently, the stock earns a B for its Fundamental Grade, owing to strong analyst earnings revisions (B), cash flow (A), and return on equity (A). Meanwhile, the company could stand to improve sales growth (C), earnings growth (C) and operating margin growth (D). AAPL receives a C for its Quantitative Grade, indicating that institutional buying pressure has improved of late.
Bottom Line: As of this posting, December 23, I consider AAPL a C-rated Hold.