Saturday, February 28, 2015

Apple’s Success Is Based On Fundamentals

On February 27th Apple’s share price ended the month’s trading at $128.46 after achieving an all-time high of $133.60 in intra-day trading on Tuesday, February 24th. The closing price represented an 8.82% rise in the share price from the opening bell on Monday, February 2nd and a 17.70% rise in the share price since the release of December quarter results on January 27th. 

Speculation About An Apple Car
In addition to Apple’s strong December quarter performance sparked by record iPhone unit sales and iPhone revenue, speculation about the development of an Apple car has added a new and alluring element to the company’s share price action. No matter the fact if an Apple car is under serious development it would not reach the consumer market before 2020, investors are attracted to the concept of Apple entering the auto industry as a new sector for revenue and profit growth.

Apple’s March 9th Special Event
Choosing the first weekday following the seasonal change in time to announce the release date and pricing for the Apple Watch, Apple has sent out invitations for a March 9th special event. The Apple Watch is the first new product line to be released by the company since the appointment of Tim Cook as CEO. While expectations for unit sales vary widely among analysts, the Apple Watch will deliver new revenue and net income for the company. The Apple Watch will add appreciably to Apple’s revenue and earnings per share growth rates particularly in the first four fiscal quarters following release. 

FY2015 Revenue and Earnings Per Share Expectations
The Wall Street consensus revenue estimate for the fiscal year ending in September currently stands at $225.24 billion, representing anticipated year-over-year revenue growth of 22.22%. The Street’s current consensus earnings per share estimate of $8.59 represents anticipated eps growth of 33.18%.

In contrast, my current revenue target for FY2015 is $235 billion and earnings per share for the fiscal year of over $9.25. My comparatively bullish outlook, anticipating revenue growth of 28.56% and earnings per share growth in the range of 44%, is based only in part on expectations for the early success of the Apple Watch. Rising iPhone and Mac sales are integral to my revenue growth models. Apple’s net income per revenue dollar is rising quickly as the rate of revenue growth zooms beyond 20%.

Apple’s Success Is Based On Fundamentals, Not Faddishness
While an Apple car is an interesting topic for conversation and as we mark time waiting for news on the release date for the Apple Watch, management is hard at work boosting the company’s underlying financial performance.

The graph below illustrates Apple’s net income performance over the most recent twenty one fiscal quarters. The recent December quarter’s iPhone unit sales growth rate of 45.94% sparked a 37.88% rise in net income and boosted net income per revenue dollar to 24.16%.


The graph below illustrates in a more simple way Apple’s net income per revenue dollar over the same 21-quarter period. The larger-screen iPhone 6 handsets have not only boosted unit sales, the increase in the average selling price (ASP) has boosted the company’s gross margin.

Saturday, January 31, 2015

The Earnings Trend Is Again Apple’s Friend

On Tuesday, January 27th, Apple announced December quarter results with record revenue of $74.599 billion, record net income of $18.024 billion and record earnings per share of $3.06. Beyond those superlatives, Apple also set a global record for quarterly net income of any publicly-traded enterprise in history. The depth, spread and scope of Apple’s December quarter success caught even the most bullish Wall Street analysts by surprise. 

The good news for Apple shareholders is the company’s December quarter results are not a crescendo but merely the first fiscal episode in a new epoch of outsized enterprise success.

The Earnings Trend Is Again Apple’s Friend
The graphs below illustrate the dramatic change in the company’s revenue and earnings trends delivered in the December quarter. 
Against a backdrop of foreign exchange headwinds, Apple’s recognized revenue on a sequential basis rocketed higher by 77.1% in the period. On a year-over-year basis, revenue rose 29.53% The December quarter delivered the highest rate of year-over-year revenue growth since the March quarter of FY2012, nearly three years ago. On  a sequential basis, the rate of revenue growth was the fastest rate of growth in the study period of just over six fiscal years or twenty five fiscal quarters. 
On a year-over-year basis, Apple’s 47.83% rise in earnings per share was the fastest rate of growth since the March quarter of FY2012 and on a sequential basis, the fastest rate of growth in the twenty five fiscal quarters under study. Aided by the ongoing $90 billion share repurchase program, Apple’s record net income of $18.024 billion translated into earnings per share of $3.06 in the December quarter. In the period net income rose 37.88%.