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July 22, 2009
Apple Scores Again with Big Quarter and Good Guidance
Apple reported another great quarter with Mac and iPhone unit sales exceeding expectations and gross margins coming in well ahead of the most bullish estimate. The stock has come a long way and may stall after this morning's pop but I think over the balance of this year the stock can move to $180 to $200 assuming the economy and market pose no major obstacles. Analysts are effusive in their praise today and most have raised earnings estimates and price targets. All good but keep in mind universal praise often means in the short-term the good news is priced in.
Last night a good friend and hedge manager who has made money shorting Apple in trades asked me why the stock was up 5% after hours and how the stock could go straight up this year without a 20% correction. I should point out my friend covered his latest short yesterday at a profit before the earnings report. Here was my reply:
Apple soared because of guidance on gross margins reported. Guidance was almost equal to current consensus. For Apple that is an upside surprise. I read today that one analyst calculated that over the last 12 quarters the average EPS guidance was 12% below then current consensus. Furthermore, I read that some people though they might guide as low $1.00 yet they guided to $1.20.
Also, inventories look low, very low, which means that predictability on the quarter is high as channels rebuild.
Finally, gross margin came in at 36.3% despite rising commodity costs. And guidance is for 34% despite even higher commodity costs. Commodity costs were a major worry.
Macs were firm and showed great elasticity to the price drops especially the laptops. That had been another worry.
But the iPhone is amazing. Revenues of $1.7 billion this quarter and clearly they are driving gross margins. That biz had just $400 million in revenue in the year ago quarter. Growth like that is impossible to come by and that is why the stock keeps going up. Plus Apple has absolutely superb operating execution every quarter.
Cash is now $34 per share and earning virtually nothing, less than 15 cents this year. EPS in 2010 are probably gonna be north of $7.00 so you got a $125 stock which is less than 20 times. Not cheap but not outrageous in a growth starved market.
Something new is going to have to pop up to trip it 20%. The economy has not hurt as badly as feared, the Jobs factor is less, Macs are still gaining share, and the iPhone is on fire. Besides another leg down in the economy or a market crash, tell me the new thing that is going to hit for 20%. I don't see it at least for the next 3-6 months.
After the report and during the conference call, I provided live commentary of my thoughts via Twitter. Here is recap of my tweets:
Big gross margin drives AAPL well above consensus EPS. Guidance closer to analyst estimates than usual which should be a positive.
One question for APPL is Receivables, which are up a lot. Probably late in qtr iPhone 3Gs shipments but worth asking.
AAPL inventories look low which should create confidence in Sept qtr guidance/estimates and may explain stronger than usual guidance.
Product/Segment breakdown for AAPL has no surprises. Big units for laptops with $100 sequential decline in ASP means price cuts working.
No Steve Jobs on the AAPL call unless he makes an unannounced appearance.
Good question and better than usual guidance leads to routine conference call for AAPL so far. Now up $7 from NY close! IMO, well deserved.
Good question from AAPL analyst: Given locked in deferred revenue why isn't sequential guidance stronger than usual? Answer: less Macs due to recent refresh.
Another good Q for AAPL: Mac elasticity? Answer: admit price cuts helped on MacBook Pro but no change to LT view of price/value for Macs.
iPhone boosting AAPL gross margin reversing gross margin worries from a year ago and cushioning currently rising commodity costs.
Posted by Steve Birenberg at July 22, 2009 08:07 AM in AAPL
THE MARKET FINALLY BROKE THROUGH RESISTANCE.MICC IS UP ABOUT $20 IN THE LAST FEW WEEKS ON A GOOD REPORT
CETV IS UP TO UPPER END OF ITS RANGE ST APPROX. $21.50.IS IT MORELIKELY THAT CETV WILL CONTINUE TO RISE AFTER THE UPCOMING CONFERENCE CALL OR WILL DISPPOINT ON EARNINGS AND THE STOCK WILL PULL BACK?
IN GENERAL,IS IT TIME TO SELL OR TO RIDE WITH THE MOMENTUM?
950 S&P should provide support now but until we get a pullback it is hard to say if this move has established a new, higher trading range. I still beleive the economic recovery will be uneven so cash should be raised on each leg up in the market.
I don;t mean to be evasive but it is impossible to tell how CETV will react. I don't see the stock moving much higher until there are signals that advertisers are spending again in their markets. We could get a hint of that on the conference call but I doubt it. I do expect the results to be very weak and likely generate negative headlines. That said, one year from now I expect the stock to be in the $30s.
Posted by: Steve at July 23, 2009 11:03 AM