Apple (AAPL, Financial) reported its second quarter results on April 27, 2015 and the company has not disappointed investors. When Apple reported 1Q15 numbers, I was under the impression that investors should consider exposure to the stock for the coming quarters. With 2Q15 results, I maintain my view and I also believe that Apple will continue to create long-term value. This article discusses some of the key positives from 2Q15 results.
From a revenue and EPS perspective, Apple set a new record for the second quarter with revenue of $58 billion and an EPS of $2.33 per share. Revenue and EPS surge for 2Q15 was 27% and 40% respectively and if the annualized EPS is considered, Apple is trading at a PE of just 14. Therefore, the first point that I wanted to make is that Apple is certainly not expensive from a valuation perspective and with a robust product pipeline; strong growth is likely to continue. In other words, my view is that investors can consider some exposure to the stock even at these levels.
Coming to the second positive, Apple has announced that it has expanded the capital return program to $200 billion of cash by March 2017. The share repurchase target has been increased to $140 billion from $90 billion announced earlier. Further, the quarterly dividend has increased to $0.52 per share and it translates into an annual dividend payout of $2.08 per share. There are two points to note here – First, an increase in share buyback will continue to have a positive impact on the EPS and second, the dividend payout will continue to increase, making Apple an attractive dividend stock to consider for the portfolio.
The third important point and positive that comes from the results is global revenue diversification. International sales accounted for 69% of 2Q15 results and this is important for the sales growth that has come from China. Revenue from China surged by 71% to $16.8 billion and China still remains a high growth market for Apple. In addition, India can also be a big market over the next 3-5 years with strong sales in India as well. Therefore, Apple has a strong foothold in emerging markets and this will ensure that the revenue growth trajectory remains sharp in the coming years.
Investors also need to consider the fact that the June quarter commences for Apple with a new product in the offering. While it is too early to talk about the sales, Apple watches can have further positive impact on the company’s growth in the coming quarters. I therefore expect the strong growth trajectory to sustain for Apple.
In conclusion, Apple has been delivering in terms of sales, EPS growth and shareholder value creation. With more people switching to the Apple phone experience along with new products in the pipeline, Apple stock is worth considering at current levels. As mentioned earlier, the stock is not trading at expensive levels and I believe that the stock will continue to trend higher in the coming quarters. The immediate upside trigger will be the results followed by the response in the market for Apple watches.
