Apple: iPad Rumors, Strapped Consumers

7/23/2012


  Recent Price
$607
  Dividend
$10.60
  Yield
1.7%
  P/E Ratio
15
  Shares (millions)
945
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$644.00 - $353.02

Apple ($607; AAPL) shares have rallied 62% over the last year, more than eight times the gain of the S&P 1500 Technology Sector Index. But not even a move of that size has kept pace with Apple's operating results, as per-share profits soared 95% in the 12 months ended March. At 15 times trailing earnings, the stock trades 36% below its five-year average.

The June-quarter report, due July 24, will plot the stock's near-term course. Some analysts worry iPhone sales could disappoint, yet profit estimates for the June quarter are rising. The consensus projects earnings of $10.38 per share, up 33% on 31% higher sales.

Apple's guidance will draw scrutiny, as investors seek to learn whether the company can continue to excel despite weaker U.S. consumer spending. Analyst estimates for the September quarter are falling, though the July 20 release of the new iPad in China could provide upside. China accounted for 20% of Apple's sales in the March quarter. Other questions will take longer to answer, such as: Can Apple extend its string of hit products? Apple, earning the maximum Quadrix Overall score of 100, is a Focus List Buy and a Long-Term Buy.

What is and what might be

Apple's growth continues to confound skeptics. Sales of both iPhone (50% of 12-month revenue) and iPad (20%) more than doubled in the six months ended March; revenue from Macintosh personal computers (16%) climbed 12%, and music and iPhone applications (5%) jumped 36%. While Apple's past growth trajectory may be unsustainable, the stock's valuation already discounts a slowdown.

Research In Motion ($7; RIMM) and Nokia ($2; NOK) offer cautionary tales about how quickly dominant mobile-device companies can tumble toward irrelevance. So far, Apple's wide moat has repelled most rivals in the estimated $66 billion tablet market, though two fresh campaigns are gearing up. Google's ($577; GOOG) Nexus 7 tablet features a smaller screen and lower price, while Microsoft's ($30; MSFT) forthcoming Surface tablet comes with a keyboard. But both face a high hurdle — 225,000 applications designed specifically for the iPad.

To analyze Apple's outlook is to consider the success of products that don't yet exist. Speculation swirls about an iPad mini being released for the holidays to help protect Apple's estimated 60% share of the of the tablet market. And production on a new iPhone has reportedly begun, with a launch possibly as soon as September.

Apple has already unveiled a new mobile operating system featuring a map application that could give it a larger piece of the $2.5 billion market for mobile advertising. Apple also refreshed its line of MacBooks in time for the back-to-school season.

While the consumer is king today, Apple's long-term growth may hinge on management's execution in the corporate market. Apple is building its sales force in an effort to capture more of that market.

By the end of September, Apple plans to pay its first dividend since 1995, a $2.65-per-share quarterly payment that equates to a yield of 1.7%. An annual report for Apple Inc. is available at 1 Infinite Loop, Cupertino, CA 95014; (408) 974-3123; www.apple.com.

APPLE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '12
12.30
vs.
6.40
+ 59%
621.45
-
409.00
18 - 12
Dec '11
13.87
vs.
6.43
+ 73%
426.70
-
354.24
15 - 13
Sep '11
7.05
vs.
4.64
+ 39%
422.86
-
334.20
17 - 13
Jun '11
7.79
vs.
3.51
+ 82%
355.13
-
310.50
17 - 15
           
Year
(Sep.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
108.25
27.68
0.00
422.86
-
277.77
15 - 10
2010
65.23
15.15
0.00
294.73
-
180.70
19 - 12
2009
42.91
6.29
0.00
188.90
-
78.20
30 - 12
2008
32.48
5.36
0.00
202.96
-
100.59
38 - 19
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
100
99
68
100
99
86
85

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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