Apple Inc. (AAPL): This Category May Hold Key To Stock Rally’s Fate

Apple stock

With iPhone sales declining, Apple Inc. (NASDAQ:AAPL) has been trying to highlight its services businesses as a real growth category, which according to the company’s June-quarter earnings results grew 19% year-over-year (y/y) to hit a new quarter record of $6 billion. Growth came on the back of Apple’s active install base, which brought in $10.3 billion during Q3, marking 29 percent growth y/y, compared to 27% and 24% in the prior two periods.

Over the course of the last 12 months, Apple’s Services revenue globally, which includes business from iTunes, iCloud, Apple Music, Apple Pay, Apple Care and the various App Stores is up more than $23 billion. Services now account for 11% of Apple’s overall revenue, up from 8% in the year-ago period. The real question now is whether these metrics signal saturation or sustained growth. After all, Services is becoming increasingly important to Cupertino’s bottom line.

Morgan Stanley’s (NYSE:MS) Katy Huberty believes that the sector’s double-digit growth rates will continue in the near term. In a research note [via bidnessetc] issued to investors on Friday, the analyst wrote she expects fiscal-year 2016 and 2017 Services growth to come in at 22% and 14%, respectively, which implies $28 billion in revenues next year. Huberty, who reiterates her ‘Overweight’ rating on Apple stock, with a $123 12-month base case estimate, notes in her research she believes Services will become the 100th company on Fortune’s list by the end of fiscal 2017. The analyst is echoing Apple CEO Tim Cook who said on July 26 that Apple expects this category alone to be the same size as a Fortune 100 company next year.

Ms. Huberty also mentioned that short interest in top-weighted Apple shares is at a six-month low. Recent short interest data for the 7/15/2016 settlement date shows as of June 30, the short interest for the tech giant totaled 44.25 million shares, as compared to 53.94 million shares since June 15, a decline of 18%. It is worth mentioning that ticker’s short interest has plunged by more than 55 million shares, or 56%, from the 5/31/2016 settlement date.

Apple Stock Action

Shares of Apple closed at $107.48 on Friday, gaining 1.52%. The stock extended its recent rally, jumping 11.3% since reporting better-than-expected Q3 bottom-line result. After bottoming on July 26 ($90.34), Apple rebounded above $100 as it put in a series of highs at that level. The stock continues to trade at the higher end of the trading range. In Friday’s session it hit higher-highs above $107 and is attempting to consolidate itself above $100 as a major support level. The stock should discover initial resistance at $108.57 and subsequent resistance at $109.31. Some continuation could set AAPL up for a re-test of the $110 zone. The issue looks tight so keep an eye on this trade idea.

In the past 52 weeks, shares of the iPhone maker have traded between a low of $89.47 and a high of $123.82. Shares are down 4.65% year-over-year ; up 3.85% year-to-date.

Of 44 analysts who follow Apple stock, 38 rate the name a ‘Buy’ while 4 recommend holding shares. Only two analysts rate it a ‘Sell’. The majority of analysts have a median price target of $120.00 with a high target of $185.

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