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Apple Reaches All-Time High on Dividend Hike & Buyback Talks

Zacks Equity Research

Apple Inc. (AAPLreached an all-time intraday high of $136.27 on Feb 15. The stock price also jumped for the third consecutive trading session to close a tad lower at $135.51. 

The momentum in Apple’s share price is not surprising as the company has outperformed the Zacks categorized Computer Mini industry in the last one year. While the stock returned 38.11%, the industry gained 37.14% over the same period.

The recent upside can be attributed to the tech giant’s announcement of better dividend payouts and buybacks if the new government under Donald Trump lowers U.S. corporate tax rate. A lower tax rate will help the company to repatriate its offshore cash, which as per The Wall Street Journal was almost 91% of its total cash balance.

Notably, since Trump’s election win, Apple’s shares have gained 24.31% compared with the industry’s growth of 15.22%.

Moreover, legendary investor Warren Buffett’s move to buy Apple shares have instilled confidence among investors who, not so long ago, had questioned the company’s future.

What’s Driving Apple?

Riding high on the holiday season sales, this California-based company posted revenues of $78.4 billion in its first quarter fiscal 2017. Apple’s flagship product iPhone made a comeback with almost 78.3 million units sold in the quarter, an increase of 5% from the year-ago quarter. Revenues from iPhone grew 5.5 % to $54.4 billion (69.4% of total revenue) year over year.

Apple Inc. Price

Apple Inc. Price | Apple Inc. Quote

Apple’s shares have been on the rise since its earnings announcement on Jan 31, 2017. Moreover, the company has inched past Samsung in terms of market share as per a latest report from Gartner, which is a positive.

The future looks bright for Apple considering the increasing expectations for iPhone 8. Reportedly, the new iPhone will feature unique technological upgrades like augmented reality, OLED display and also support wireless charging. Furthermore, rumors of the upcoming models being equipped with an iris-scanner are also doing the rounds. All these are expected to revive revenue growth.

The Trump Card

However, Apple CFO Luca Maestri has expressed concerns regarding Trump’s border tax on imports. Apple largely depends on manufacturing units in China, Mongolia, Korea and Taiwan and the tax is likely to increase its prices.

The tax is likely to disrupt the iPhone maker’s plan to set up its first manufacturing and assembling unit in Bangalore, India. The company’s decision to move to India is based on the growing per capita income of the country’s middle-class and rising smartphone users in the sub-continent.

However, we believe that Apple can tweak its device selling policy to avoid a possible Trump tax on imports by selling the lower priced India-made product in the sub-continent and adjoining markets only. The comparatively lower-priced device will help Apple gain revenue share in the region.

Moving Forward

Apple’s Services business is expected to remain strong. Moreover, in the long run, Apple is expected to benefit from its robust cash position, strength in technology, the ecosystem that it has built and its loyal customer base. Further, its enterprise collaborations with the likes of Deloitte, IBM Corp. IBM, Cisco and SAP SE SAP are expected to be important long-term growth drivers.

We believe that the buzz surrounding iPhone 8 should allay investors’ fear about iPhone sales trajectory and help its market performance. Moreover, Apple is likely to gain from its focus on the budding Indian market irrespective of Trump’s import ban.

Zacks Rank & Stock Movement

At present, Apple has a Zacks Rank #3 (Hold).

A better-ranked stock in the wider technology space is Oclaro Inc. OCLR, which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the trailing four quarters, Oclaro recorded a positive average earnings surprise of 75.00%.

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