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Apple Stock (NASDAQ:AAPL): What to Look for In Its Q4 Results

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3 years ago
Apple ( NASDAQ:AAPL ) is set to release its Q4 results on November 2, which makes this an ideal time to review some of the key figures investors ought to look out for. The $2.8 trillion technology behemoth released the iPhone 15 just days before its quarter-end, adding complexity to revenue predictions. Further, with Apple shares dipping in August, monitoring the course of share repurchases will provide valuable insights into the stock's valuation. For the time being, I am neutral on the stock. Can Strong iPhone Sales Momentum from Q3 Transfer Over to Q4? Apple ended Q3 with strong momentum, which has likely lasted as the company made its way into Q4. For context, Apple posted revenues of $81.8 billion in the previous quarter. While this marked a decline of 1.4% over Q3 2022, lower sales were only due to seasonality around device purchasing and foreign exchange headwinds. In fact, the company posted record iPhone revenues in multiple emerging market regions and in some of its more mature markets, ending the quarter with strong momentum. Specifically, despite the 2.5% decline in iPhone sales, management mentioned that quarterly iPhone revenues hit new records in India, Indonesia, Mexico, the Philippines, Poland, Saudi Arabia, Turkey, and the UAE. The company also set new quarterly records in a number of its more mature countries as well, including France, the Netherlands, and Austria. Given the strong international iPhone sales momentum Apple posted in Q3, investors are eager to see how the device's sales will come in during Q4 (Apple's fiscal Q4 ends September 30th). This question becomes even more interesting when we take into account that Apple released the iPhone 15 on September 22, just before the end of Q4. Well, it's safe to say that iPhone sales won't be disappointing. Early reports indicate record-breaking sales in key markets such as China. However, I would say that regardless of whether iPhone 15 sales appear strong or not, there are better key performance indicators (KPIs) for investors to focus on in this report. The reason is that the iPhone 15's incremental improvements from its predecessor, while meaningful to the device's evolution, don't make a big enough impact to cause users to upgrade. If you own an iPhone 14, there is little incentive to upgrade unless you are a professional creator seeking to leverage an even better camera. In my view, to assess whether Apple's momentum remains strong in Q4, investors should assess how Apple's overall ecosystem is evolving. The company's installed base is a great metric. For example, even if not many people were to upgrade to an iPhone 15, the fact that the company's installed base continues to grow is way more important. Smartphone sales follow a cyclical pattern, with users who opt not to upgrade to the iPhone 15 likely considering the move next year. Conversely, those who have upgraded now may not revisit the decision until the release of the iPhone 17. However, for Apple, the crucial metric lies in sustaining consistent growth in the overall number of iPhone users. Notably, in Q3, Apple celebrated an all-time high installed base of active devices. In turn, this translates to higher revenues in the company's non-cyclical source of revenue -- Services. Indeed, in Q3, Services revenues grew by 8.2% to $21.2 billion, a new all-time high for Apple. This is a high-margin segment for the company, whose continuous growth should support earnings expansion. So, to wrap up, investors should focus more on the progress in Apple's installed base and growth in Services rather than the year-over-year growth in iPhone sales. What Do Apple's Buybacks Say About the Stock's Valuation? Apple's Q4 buybacks can unveil crucial insights into the current valuation of the stock. Despite a significant uptick in interest rates, the stock's valuation has consistently maintained elevated levels. Notably, Apple's forward P/E multiple, standing at nearly 28, surpasses its historical range of 10-17 observed between 2010 and 2020. This discrepancy is particularly perplexing, given the considerably lower interest rates prevailing in that earlier period. That's quite puzzling and has raised concerns among investors. Therefore, seeing how Apple will react to its current valuation based on whether it chooses to repurchase a bunch of stock or be more conservative should be a good indicator. If AAPL continues buying back stock aggressively, it's quite likely that the company's own earnings growth expectations for the future remain assertive. If, instead, repurchase activity softens, it could be an indicator that management thinks the stock is overvalued relative to the company's earnings growth potential. Is AAPL Stock a Buy, According to Analysts? Regarding Wall Street’s view on the stock, Apple features a Moderate Buy consensus rating based on 20 Buys and nine Holds assigned in the past three months. At $207.69, the average  Apple stock forecast implies 16.1% upside potential. If you’re wondering which analyst you should follow if you want to buy and sell AAPL stock, the most accurate analyst covering the stock (on a one-year timeframe) is  Krish Sankar from TD Cowen, boasting an average return of 47.5% per rating and a 93% success rate. The Takeaway In conclusion, as Apple gears up for its Q4 results, the focus should extend beyond the immediate impact of iPhone 15 sales. While early reports suggest strong demand, the key indicators for investors lie in the sustained growth of Apple's installed base and the flourishing Services segment. Additionally, an assessment of Apple's buyback strategy in Q4 will offer insights into the company's valuation and management's confidence in future earnings growth. As of now, maintaining a neutral stance on the stock seems prudent. Disclosure

W. P. Carey Stock’s (NYSE:WPC) 7.9% Yield is Safer Than It Looks

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3 years ago
W. P. Carey stock ( NYSE:WPC ) has been hammered year-to-date, leading to its dividend yield advancing to a substantial 7.9%. The REIT, which owns 1,475 net lease properties (office, retail, industrial) and 100 operating properties (including hotels and self-storage sites), has seen its shares decline by 27.6% during this period. In fact, at $54, the stock is trading at the same levels it did all the way back in 2012. Despite that, the dividend appears well-covered, and the high yield is attractive. Thus, I am bullish on WPC stock. Why Has W. P. Carey Stock Fallen Recently? W. P. Carey's stock steep stock decline in recent months can be attributed to several reasons, all of which, however, are directly tied to the current macroeconomic environment. The main factor dissuading investors, in my view, is the tough challenge the company currently confronts in executing its growth strategy. As I mentioned, W. P. Carey currently owns 1,475 net lease properties, spanning industrial, retail, and office spaces, along with 100 operating properties—85 in self-storage, 13 hotels, and two student housing units. Notably, a decade ago (Q2 2013), the company managed a portfolio of 1,018 properties with only 423 representing ownership (the rest were just managed with some partial interest involved). Its growth strategy has transformed the company's ownership structure and notably boosted its asset base during this period. W. P. Carey's property portfolio expansion unfolded during a period marked by predominantly low interest rates. This enabled management to identify accretive opportunities across various property types and subsequently increase its funds from operations per share (FFO/share) over time. Specifically, the company's adjusted FFO/share exhibited a gradual increase from $4.29 in Fiscal 2013 to $5.29 last year. Given the reasonable levels of the cost of debt (interest expenses) and cost of equity (dividends, from WPC's perspective), the company could generate a nice profit margin when deploying cash raised through debt or equity. However, this landscape has now changed drastically. Over the past year, interest rates have surged, rendering potential acquisitions considerably more expensive. Concurrently, certain asset classes that once presented attractive opportunities for the company now lack their former allure. As you may have read in the news, commercial properties continue to grapple with challenges in achieving satisfactory occupancy levels, persisting even in a post-pandemic era. Furthermore, concerns about a potential downturn in consumer discretionary spending have exerted pressure on rent growth in retail properties. W. P. Carey's reduced growth prospects and an increase in investors' required returns due to rising rates explain the stock's 7.9% yield. The rationale behind investors valuing the stock with minimal growth expectations is evident, as the majority of anticipated future returns are attributed to the hefty dividend. It's important to note, however, that the 7.9% yield does not necessarily signal any vulnerability in the safety of payouts. Despite concerns some investors might harbor, assuming that such a high yield implies the market foresees a potential dividend cut, I believe this is hardly the case. How Safe is WPC's 7.9% Dividend Yield? W. P. Carey's 7.9%-yielding dividend appears to be on solid ground. Sure, the company faces troubles when it comes to executing its growth strategy in the current market. Further, WPC is set to be hit with higher interest expenses this year and in the years to follow as this situation persists. Still, these factors shouldn't impact its dividend coverage notably. To illustrate this, management expects W. P. Carey's AFFO/share to land between $5.32 and $5.38 in Fiscal 2023. In fact, the midpoint of $5.35 even implies growth compared to last year's figure of $5.29. Yes, its interest expenses have grown notably lately, surging by 62.7% year-over-year in Q2. However, the modest revenue growth, disciplined spending, and reduced stock-based compensation have ensured that the bottom line remains mostly intact. Besides the midpoint of management's guidance pointing to an acceptable forward payout ratio of 80%, investors can probably feel more secure about W. P. Carey's dividend based on the company's exceptional track record. Specifically, WPC boasts 28 years of consecutive annual dividend increases. For context, there are only six U.S.-based REITs boasting more than 25 years of dividend growth, which highlights the company's qualities and ability to remain resilient through some of the worst economic environments of the past two decades. Is WPC Stock a Buy, According to Analysts? Turning to Wall Street, W. P. Carey has a Moderate Buy consensus rating based on three Buys, three Holds, and one Sell assigned in the past three months. At $68.00, the  average WPC stock forecast implies 25.6% upside potential. The Takeaway In conclusion, despite W. P. Carey's recent stock decline (attributed to challenging growth prospects and rising interest rates), its 7.9% dividend yield appears secure. While the market expects minimal growth from WPC, the company's solid track record, disciplined spending, and expected AFFO/share growth in 2023 support confidence in dividend stability. With 28 consecutive years of dividend increases, the company also demonstrates resilience, making it an appealing option for income-oriented investors seeking high yields they can rely upon. Disclosure

PepsiCo Stock (NASDAQ:PEP): Can It Retain Its Fizz after Upbeat Q3 Results?

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3 years ago
Food and beverage giant PepsiCo ( NASDAQ:PEP ) reported impressive Q3 results despite macroeconomic headwinds. Both revenue and earnings beat analyst’s consensus estimates. Its ability to battle inflationary pressure while posting strong revenue and earnings growth consistently is why Wall Street is hopeful about the stock. Hence, I am also bullish on PepsiCo stock now. PepsiCo has been in the business for more than 50 years. Its portfolio includes 16 iconic beverage brands and seven food brands. Consumer stocks, in general, are defensive, implying the demand for their products stays unaffected by economic cycles. This is evident from its most recent Q3-2023 results, released on October 10. Despite concerns that price hikes could affect demand, PepsiCo had a highly-profitable quarter. PepsiCo’s Q3 Results Smashed Estimates; A Brighter Outlook for 2023 In the third quarter ended September 2023, net revenue increased by 6.7% year-over-year to $23.5 billion, exceeding analysts’ estimate of $23.4 billion. Earnings per share (EPS) stood at $2.24, a whopping 15% increase from the year-ago quarter. EPS also surpassed the consensus estimate of $2.15 per share. Also, average prices increased by 11%, but organic volume dipped 2.5%.  Talking about the results, CEO Ramon Laguarta stated, “We believe that our businesses can continue to perform well in the coming years with category growth normalizing, as we have made numerous investments in our brands, manufacturing capacity, go-to-market systems, supply chain, technology, and people, to execute against our strategic framework and modernize our company.” Looking ahead, management expects that core constant-currency EPS will grow by 13% this year, up from the 12% previously estimated. PepsiCo reiterated its target of 10% organic revenue growth in Fiscal Year 2023. Furthermore, management expects the company to meet the upper end of its Fiscal 2024 organic revenue growth target of 4% to 6%, as well as core constant-currency EPS growth in the "high-single-digit percentage." Pepsico also intends to implement modest price increases next year to tackle rising inflation. What is PepsiCo Doing Right? Despite competition and macroeconomic headwinds, PepsiCo has been steadily increasing its revenue and earnings. The company also quickly resumed growth following the global economic slowdown caused by the pandemic. It  grew revenue and earnings by 13% and 7%, respectively, in 2021 compared to 2020. PepsiCo hasn’t seen dramatic growth; instead, it has grown gradually over the years. Looking back, PepsiCo’s revenue has increased at a compound annual growth rate (CAGR) of 6.3% over the last five years. Meanwhile, Coca-Cola’s ( NYSE:KO ) revenue has increased at a CAGR of 3.5% over the same period. The popularity of its brands, its diverse portfolio, and the fact that it operates in an industry that can withstand recession-related headwinds have all contributed to its survival and growth thus far. PepsiCo's strength lies in its innovative marketing strategies that allow it to gain a competitive advantage over rivals. Surprisingly, while advertising expenses increased during the quarter, operating profit margins expanded, highlighting its strength. Over the years, its consistent growth has fueled dividend payments. In 2022, the company entered the prestigious Dividend Kings group. It's an elite group of S&P 500 companies that have hiked dividends for more than 50 years. Its  dividend yield is 3%, significantly higher than the S&P 500's ( SPX ) average yield of 1.4% Lastly, PEP reported free cash flow of $5.2 billion for the 36 weeks ended September 9, a 31.3% year-over-year increase. A steady increase in earnings and free cash flow supports its sustainable dividend payout of 64%. Is PepsiCo Stock a Buy, According to Analysts? PepsiCo’s stock has fallen by 9% year-to-date, underperforming the S&P 500's gain of 13%. Despite the YTD dip in the stock, analysts remain bullish on PEP stock. TipRanks rates PEP stock as a Moderate Buy based on nine Buys, seven Holds, and no Sell ratings given in the past three months. The average PEP stock price target of $189.13 implies 18.2% upside potential. Impressed with PepsiCo’s upbeat forecast, Bank of America ( NYSE:BAC ) analyst  Bryan Spillane reiterated his Buy rating on the stock, with a Street-high price target of $210 (implying 31.3% upside potential). Furthermore, TipRanks has given the stock a 'Perfect 10' Smart Score. To determine whether a stock is likely to outperform the market, the TipRanks Smart Score Tool assigns a score between 1 and 10 (10 being the highest), taking into account various market-driven dynamics. Since 2016, stocks with a  'Perfect 10' Smart Score on TipRanks have outperformed the S&P 500 Index by a large margin. The Takeaway The demand for PepsiCo's brands, as well as its smart growth strategies, have propelled the firm through numerous recessions and challenging times. The company continues to grow its revenue and earnings while maintaining a payout ratio of around 65%, highlighting the stability of its business. As a result, I agree with Wall Street's bullish long-term outlook for PepsiCo's stock. Disclosure
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