Less than two years ago, Apple’s market capitalization edged past $700 billion – a level hitherto achieved by any U.S. company. And now, the iPhone maker’s market value has crossed $800 billion, again a first for a U.S. firm. With Apple’s latest efforts to juice up shareholder incomes, coupled with its seeming dominance in the higher-end smartphone market, is Apple’s stock poised to reach an even higher milestone?

Are Plans of Higher Shareholder Payments Bolstering Apple’s Rally?

The firm’s announcement on May 2, to scale up its distributions to shareholders could have helped in catapulting its market cap beyond $800 billion last week.  Apple decided to pump up its program of returning capital to shareholders by + $50 billion and will extend the program’s timeframe to include four more quarters, so the cumulative distribution to shareholders is expected to reach $300 billion by March 2019.

And, that includes a +$35 billion increase in share repurchases. From $175 billion planned a year earlier, the firm is now authorized to buy back $210 worth of shares from stockholders. Share repurchases by a corporation are often taken as a sign of its ample cash – a theory that perhaps couldn’t have a better example than Apple, given the firm’s reputation as one of the top cash hoarders in the world.

Buybacks lower the count of outstanding shares, potentially boosting a corporation’s earnings per share (EPS) – often a crucial metric in investing decisions. An increase in EPS raises chances of each share earning higher payouts than before – thereby potentially auguring well for shareholder income from the stock. As announced already by Apple, its shareholders are set to receive $0.63 dividends per share – an increase of +10.5% by May 18.

Apple’s Earnings Report

Earnings and revenues play critical roles in reflecting a corporation’s fundamental potential and therefore in guiding the direction of its stock price. Despite some decline in quarter-over-quarter basis, Apple’s top and bottom-line numbers in the recent fiscal quarter experienced solidly positive growth year-over-year – something that may have offset some of the concerns surrounding iPhone units’ lagging sales.

Apple’s earnings surged +4.8% in its second fiscal quarter (ending April 1, 2017) from the year-ago period – marking a sharp turnaround from the preceding four quarters, each of which registered negative year-over-year growth in earnings. The quarterly earnings per diluted share of $2.10 was an improvement over $1.90 of the same quarter last year.

Year-over-year, fiscal Q2 revenues grew faster compared to the previous quarter.

Are Investors impressed with the iPhone?

Smartphones account for around two-thirds of Apple’s revenues. The number of iPhone units sold dipped -1% compared to the year-ago quarter, but t this not prevent revenues from iPhone sales from reaching +1% over the same period. This means demand for iPhones was relatively less elastic to their price rise, thereby validating Apple’s market clout in the pricier phone segment.

And, its gearing up to launch upgraded versions of two of its existing models plus the brand-new iPhone 8 (reportedly what’s going to be its most expensive one) this year – potentially adding to investor confidence about the firm’s expansion.

Bottom Line for Investors

Increasing payments to shareholders, year-over-year growth figures and the new lineup of products seem to have worked well in pushing Apple’s value through the $800 billion threshold. Already, there are conjectures on the possibility of it reaching $1 trillion by this year – for which Apple’s per share price needs to rise +23% further. Its price has rallied close to +35% so far this year.

Price rally alone is not sufficient for investing decisions. To understand whether buying a stock at a high price is justified by its long-term return potential, it is essential to stay up-to-date on the underlying fundamentals. At Zacks Investment Management, we leverage the latest data to help our clients earn long-term rewards from their portfolios. We also guide them in planning investment strategies suited to their individual financial goals. If you need help ensuring that your asset allocations are in line with your financial objectives, time horizon and risk tolerance, feel free to call us at 312-265-9312.

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