Apple Inc. (AAPL) is widely anticipated to officially launch its AI-enabled iPhone model, the iPhone 16, at the upcoming “It’s Glowtime” event at its Cupertino, California headquarters on September 9. One of the most anticipated features of the iPhone 16 is its integration of advanced AI capabilities.

As AI becomes increasingly central to the functionality of smartphones, the iPhone 16 is expected to set a new standard in the industry.

AAPL had a challenging start to the year, with its stock declining by about 11% in the first quarter as Wall Street expressed concerns over sluggish iPhone sales and uncertainty surrounding the company’s AI strategy. However, shares have recovered since it introduced Apple Intelligence in June, the personal AI system for iPhone, iPad, and Mac.

Apple Intelligence is expected to drive a massive upgrade cycle, with existing iPhone users trading in their older devices for newer, often more expensive models. According to Wedbush analysts, around 300 million existing iPhone owners have not upgraded their devices in over four years, positioning Apple to potentially sell upwards of 240 million iPhones in its 2025 fiscal year.

The upcoming iPhone launch in September represents Apple’s major opportunity to generate excitement around Apple Intelligence on both Wall Street and Main Street before the new model hits the shelves ahead of the critical holiday shopping season.

Shares of AAPL have gained 5.4% over the past month and 25.3% over the past six months to close the last trading session at $222.77.

Let’s look at factors that could influence AAPL’s performance in the upcoming months.

Solid Financials

For the third quarter that ended June 29, 2024, AAPL’s net sales increased 4.9% year-over-year to $85.78 billion. Its gross margin rose 9% from the year-ago value to $39.68 billion. Its operating income was $25.35 billion, up 10.2% year-over-year. Its net income grew 7.9% from the prior year’s quarter to $21.45 billion.

In addition, the company’s earnings per share were $1.40, an increase of 11.1% from the prior year’s period. Apple’s cash and cash equivalents totaled $25.57 billion as of June 29, 2024.

Optimistic Analyst Estimates

Analysts expect AAPL’s revenue for the fourth quarter (ending September 2024) to grow 5.2% year-over-year to $94.14 billion. The consensus EPS estimate of $1.60 for the ongoing quarter indicates an improvement of 9.3% year-over-year. Further, the company has surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year ending September 2024, Wall Street expects Apple’s revenue and EPS to increase 1.9% and 9.2% from the previous year to $390.40 billion and $6.69, respectively. The company’s revenue and EPS for the fiscal year 2025 are expected to grow 7.7% and 10.9% year-over-year to $420.29 billion and $7.42, respectively.

Impressive Historical Growth

AAPL’s revenue has grown at a CAGR of 8.3% over the past five years. Its EBITDA has increased at a CAGR of 11.5% over the same period, and its levered free cash flow has grown at a CAGR of 14%. Furthermore, the company’s net income and EPS have improved at CAGRs of 12.9% and 17.4% over the same timeframe, respectively.

Robust Profitability

AAPL’s trailing-12-month EBIT margin of 31.27% is 539.5% higher than the 4.89% industry average. Its trailing-12-month EBITDA margin of 34.18% is 242.4% higher than the 9.98% industry average. Likewise, the stock’s trailing-12-month net income margin of 26.44% is 601.3% higher than the industry average of 3.77%.

Furthermore, AAPL’s trailing-12-month ROCE, ROTC, and ROTA of 160.58%, 44.66%, and 30.75% are significantly higher than the industry averages of 4.56%, 2.67%, and 2.10%, respectively. The stock’s trailing-12-month levered FCF margin of 22.34% is 111.6% higher than the industry average of 10.56%.

POWR Ratings Reflect Promise

AAPL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has an A grade for Quality, consistent with higher-than-industry profitability.

Within the B-rated Technology – Hardware industry, AAPL is ranked #17 out of 40 stocks.

Beyond what I have stated above, we have also given AAPL grades for Value, Sentiment, Momentum, and Stability. Get all AAPL ratings here.

Bottom Line

As AAPL prepares to unveil the iPhone 16, the stakes are high, not just for the product itself but for the tech giant’s overall market performance. The potential of AI-enabled features in this new launch to drive consumer demand, coupled with a large base of potential upgraders and a market eager for AI innovation, creates a ripe environment for stock gains.

Given robust financials, favorable analyst estimates, and a bright long-term outlook, AAPL could be an ideal investment for solid returns.

How Does Apple Inc. (AAPL) Stack Up Against Its Peers?

While AAPL has an overall POWR Rating of B, investors could also check out these other stocks within the Technology – Hardware industry with an A (Strong Buy) rating: Canon Inc. ADR (CAJPY), Seiko Epson Corporation (SEKEY), and AstroNova, Inc. (ALOT).

To explore more A or B-rated tech hardware stocks, click here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

AAPL shares were trading at $219.76 per share on Wednesday morning, down $3.01 (-1.35%). Year-to-date, AAPL has gained 14.58%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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