Apple AAPL is set to release its fiscal first-quarter earnings report on Jan. 30. Here’s Morningstar’s take on what to look for in Apple’s earnings and stock.
Key Morningstar Metrics for Apple
• Fair Value Estimate: $200.00
• Morningstar Rating: ★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium
Earnings Release Date
• Thursday, Jan. 30, 2025, after the close of trading
What to Watch for in Apple’s Fiscal Q1 Earnings
• iPhone revenue performance: The December quarter is typically the strongest for iPhone sales, and this one was the first full quarter during which the iPhone 16 was available. We expect sequential growth to be strong but roughly flat compared with the year-ago quarter.
• Services growth: We see this segment as Apple’s second-largest driver behind the iPhone, and we expect it to continue a double-digit growth pace in fiscal 2025.
• Gross margin: Apple’s gross margin has been steadily increasing over the last five years on a mix of rising service revenues and vertical integration, which we expect to continue.
Apple Stock Price
Source: Morningstar Direct.
Fair Value Estimate for Apple
With its 2-star rating, we believe Apple’s stock is overvalued compared with our long-term fair value estimate of $200 per share, which implies a fiscal 2025 adjusted price/earnings multiple of 27 times, an enterprise value/sales multiple of 7 times, and a free cash flow yield of 4%. Against our estimate of fiscal 2026 earnings, our valuation implies a price/earnings multiple of 23 times.
We project 7% compound annual revenue growth for Apple through fiscal 2029. The iPhone will be the greatest contributor to revenue over our forecast, and we project 6% growth for iPhone revenue over the next five years. We expect this to be driven primarily by unit sales growth, with modest pricing increases. We think pricing increases will be driven primarily by a mix shift toward the more premium Pro models.
Read more about Apple’s fair value estimate.
Apple Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct.
Economic Moat Rating
We assign Apple a wide economic moat, stemming from customer switching costs, intangible assets, and a network effect. In our view, Apple’s iOS ecosystem extends far-reaching, sticky tendrils into customers’ wallets, entrenching customers with software capabilities and integration across disparate devices like the iPhone, Mac, iPad, Apple Watch, and more.
We also see immense design prowess at Apple, most impressively from its deep integration of hardware, software, and semiconductors to create best-of-breed products. Finally, we see a virtuous cycle between Apple’s affluent customer base and its vast ecosystem of developer partners. These moat sources elicit great profitability and returns on invested capital. In our view, Apple can leverage these moat sources into continued economic profits over the next 20 years, more likely than not.
Read more about Apple’s economic moat.
Financial Strength
We expect Apple to focus on using its immense cash flow to return capital to shareholders while increasing its net leverage over the medium term. The firm has a terrific balance sheet, with a net cash position of $51 billion as of September 2023. Management has set a goal to become cash-neutral, though with no set timetable. We don’t anticipate it hitting this target in the next five years, but to progress toward it. Since announcing the goal in 2018, Apple has reduced its net cash position by more than half, from over $100 billion.
Read more about Apple’s financial strength.
Risk and Uncertainty
We assign Apple with a Medium Uncertainty Rating. We see the firm’s greatest risk as its reliance on consumer spending, for which there is great competition and cyclicality. Apple is at constant risk of disruption, just as the iPhone disrupted BlackBerry in the budding smartphone market. The iPhone could be unseated by a new device or “super app.” We view the firm defending against this risk by introducing new form factors (like a watch and an augmented reality headset) and selling an ecosystem of software and services on top of hardware.
We also see geopolitical risk arising from Apple’s supply chain. It heavily depends on Foxconn FXCOF for its assembly and Taiwan Semiconductor Manufacturing TSM for chip production. If there were a souring of relations between the United States and China, or if China threatened Taiwan, Apple could see a severe hit to its supply. Additionally, the Chinese government has recommended that officials not conduct business on iPhones, which presents a current and potential future risk to sales in China.
Read more about Apple’s risk and uncertainty.
AAPL Bulls Say
• Apple offers an expansive ecosystem of tightly integrated hardware, software, and services, which locks in customers and generates strong profitability.
• We like Apple’s move to in-house chip development, which we think has accelerated its product development and increased its differentiation.
• Apple has a stellar balance sheet and sends great amounts of cash flow back to shareholders.
AAPL Bears Say
• Apple is prone to consumer spending and preferences, which creates cyclicality and makes the firm vulnerable to disruption.
• Apple’s supply chain is highly concentrated in China and Taiwan, creating geopolitical risk. Attempts to diversify into other regions may pressure profitability or efficiency.
• Regulators have a keen eye on Apple, and recent regulations have chipped away at parts of its sticky ecosystem.
This article was compiled by Gautami Thombare.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
