In September 2018, Apple Inc. (NASDAQ:AAPL) released its earnings update. Generally, analyst consensus outlook appear pessimistic, as a -6.2% fall in profits is expected in the upcoming year compared with the past 5-year average growth rate of 6.8%. Currently with a trailing-twelve-month profit of US$60b, the consensus growth rate suggests that earnings will drop to US$56b by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. Readers that are interested in understanding the company beyond these figures should research its fundamentals here.
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Exciting times ahead?
The longer term view from the 36 analysts covering AAPL is one of negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. To understand the overall trajectory of AAPL’s earnings growth over these next fews years, I’ve fitted a line through these analyst earnings forecast to determine an annual growth rate from the slope.
By 2022, AAPL’s earnings should reach US$60b, from current levels of US$60b, resulting in an annual growth rate of -0.3%. However, if we exclude extraordinary items from earnings, we see that the profits is predicted to rise over time, resulting in an EPS of $14.87 in the final year of forecast compared to the current $12.01 EPS today. The main reason for AAPL’s earnings contraction is cost outpacing top line growth of 1.2% over the next few years. With this high cost growth, margins is expected to contract from 22% to 22% by the end of 2022.
Next Steps:
Future outlook is only one aspect when you’re building an investment case for a stock. For Apple, I’ve put together three key factors you should further examine:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Apple worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Apple is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Apple? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.