Apple increased its quarterly profits by 35 percent over the same period last year driven by booming demand for the iPhone 6 and increasing sales of Apple products in China. Apple sold 61.2 million iPhones during the quarter exceeding most analysts’ predictions. Management forecast that the positive performance will continue in the third quarter ending in June.

IPhone Sales

IPhone continued to be the main sales driver in the second quarter. We expect IPhone 6 sales to slow down in Q3 and Q4 as the upgrade cycle to large format phones slows, however, we still expect sales growth of over 25% for the whole of 2015.

Margins

Apple continues to increase its sales outside the US, making currency movements more relevant. The strength of the US dollar is being partially mitigated through cost savings and the shift to higher margin iPhones. We expect Apple to manage margins of 39.6% for the whole of 2015 despite this headwind.

Share-Buyback Program

Apple has increased its buyback Program to a massive $140 billion up to 2017. Assuming an average purchase price of $200 per share the impact of the share price would be significant. Add to this a further $20 billion in dividends and the implication is self-explanatory.

Apple Watch

The Apple Watch has failed to inspire to date. We do not believe the Watch will become an important revenue generating product going forward.

IPad and Mac

Large-format IPhones are denting IPad sales. We expect the importance of the IPad to slowly decline as each generation of new iPhones makes owing an iPad unnecessary. Mac Computers continue their steady climb despite weakness in PC markets.

Apple’s share price appears well supported going forward as the iPhone’s upgrade to a larger format continued to reverse the previous trend that saw a shift to Android based devices. Apple owner upgrading to the iPhone 6 are naturally expected to decline going forward, especially as rumors about the next iPhone start to emerge. Competition has also intensified in the form of the Samsung Galaxy 6.

Still 2015 is expected to be a record year in terms of revenues and profits. Add to this the share-buyback and dividends and Apple starts to appear undervalued. In addition the potential for new products creates the opportunity for surprises.

The main concern regarding Apple stems from investors’ attitude towards the stock rather than from the value of the company. Apple probably continues to be the most over allocated stock. Everyone seems to own Apple and most have too much of the stock. It is always important to remind investors that Apple is a technology stock and thus subject to the same risks as the rest of the sector.