Apple Is No Longer An Iphone Company
The resurgence of Apple's (AAPL) previously declining Mac and iPad divisions in combination with its bold growth in services and wearables means the company likely will continue to see significant revenue growth over the upcoming year despite the U.S.-China trade war conflicts.
The trade war's impact on Apple's hardware segments and Asia sales likely will decrease as tensions subside and Apple diversifies its manufacturing base. Furthermore, as the company's non-iPhone and traditional hardware segments continue to grow, the company's price-target remains at substantially higher levels than its current price.
Apple Can Handle The Trade War Headwinds
Apple stock has been having difficulty, in line with the broader technology sector and indeed entirety of U.S. domestic markets, with the re-intensifying of the U.S.-China trade war the past month. Despite a strong Q3 2019 that initially sent the stock back above $210, since then, the trade war drums have brought Apple back down. With a seeming zig-zag price behavior the past year and the stock price down about 4% year-on-year, it's not necessarily unreasonable to question whether Apple can truly break out again to and past its $233 52-week/all-time high.
Data by YCharts
In fact, with the company's price-to-earnings ratio at the upper end of its historic levels, some may even wonder if the company has more to fall.
Data by YCharts
However, my belief remains that Apple is a company whose rapidly diversifying revenue streams and competitive advantages will continue to give it growth across a variety of products and sectors. Furthermore, Apple's continual expansion into services and software-based products as well as different types of wearables, handhelds, and computers mean its dependence on China - and thus sensitivity to the U.S.-China trade war - is decreasing.
In Q3 2019, Apple reported roughly $544 million in year-on-year revenue growing, growing from $53.265B to $53.809B. However, that was even as products revenue declined by over $741 million (with iPhone sales down $3.484B or roughly 12% year-on-year), as services continued to expand, growing $1.285B.
The most notable story from Apple's Q3 2019 earnings was the decline of the iPhone. While it's still Apple's largest revenue segment, in Q3 2019, it consisted of only 48.3% of the company's revenue - below 50% for the first time since 2012 - while it consisted of 55.3% just a year ago. Remarkably, not just the services segment but the wearables and even the Mac and iPad segments all showed lively levels of growth.
(Source: 9to5Mac)
This is notable because it was only barely a year ago that the Mac and iPad segments were showing declines in sales rather than expansion. In Q3 2018, Mac and iPad revenues were both down 5% year-on-year. In contrast, this Q3 Mac sales revenues were up 10.7% while iPad revenues were up 8.4%.
(Source: 9to5Mac)
This all took place even amid Apple's Greater China revenues the past 9 months seeing a 19.7% decline, as America and non-Japan/non-China Asia revenues saw healthy growth.
As Apple's shift towards its eclectic mix of products and services outside its traditional past iPhone-Mac-iPad trio continues, the company will be able to shrug off increasingly the impact of the trade war, not to mention the potential of shifting manufacturing for said hardware to less volatile regions.
If we assume currently expansion rates hold steady, which seems reasonable given Apple's continuing market expansion in the services and wearablesspaces (Q3 2019 year-on-year services grew 12.6% while wearables grew 48%), as well as a slight downturn in the trade war and Apple's sensitivity to it, then by Q3 2020, we may see the following numbers (revenue numbers are in millions of dollars):
As shown, based on even reduced growth as compared to Apple's Q3 2019 results, revenue would still increase 2.8% in this projection even as iPhone sales continue to fall, as represented by potentially continuing trade war tensions and disruptions. If the trade war were to settle, we could see a more optimistic:
If the trade war were to subside completely and Apple able to continue its previously margin-increasing iPhone path, then we could see:
Apple made $55.695B on $259.034B of revenue or 21.501% in the past 12 months from Q3 2019. Assuming that held steady, with slight shifts towards the more high margin wearables and services products to 23%, we see net income from Q4 2019 to Q3 2020 coming in at $61.243B, $63.429B, $64.606B respectively in each of the three hypothesized situations.
Assuming roughly 5,050,963,000B diluted shares outstanding, we come out with diluted EPS of $12.13, $12.56, and $12.79, respectively. Assuming a still-constant price-to-earnings ratio of 17, that amounts to a 12-month price-target of $206.21, $213.52, $217.43, respectively, for according gains from Apple's current $200.48 price of 2.86%, 6.50%, and 8.45%, not including Apple's roughly 1.54% current dividend or continued potential share buybacks.
Conclusion
As shown, Apple is facing a much more optimistic case than the current flurry of trade war headlines may present. The big boost for Apple amid the trade war's frenzies is the revival of its iPad and Mac segments and the seemingly continual march of its services, wearables, and accessories divisions.
These segments are now quite large and yet still see levels of growth that were present in their younger days and likely will be the support that keeps Apple going in the upcoming future.
Even under less than optimistic projections, the company's net income haul still merits share price growth. Under the more hopeful scenarios, Apple's upcoming potential growth looks even more substantial and attractive.
(Source: Apple)
Disclaimer: These are only my opinions and do not constitute investment advice.